Business context and reporting period
So-Young International Inc. filed this Form 20-F for the fiscal year ended December 31, 2021; it is an annual report, not a standalone fourth-quarter filing. The Cayman Islands holding company operates primarily in China through PRC subsidiaries and variable interest entities (VIEs), which are consolidated under U.S. GAAP through contractual arrangements. VIEs contributed 93% of 2021 revenue.
The business combines a medical-aesthetics content and reservation platform with medical beauty equipment research, production and sales. In July 2021, So-Young acquired control of Wuhan Miracle, an equipment business. The filing reports 2021 average mobile monthly active users of 8.5 million, up 18.7%, while purchasing users fell 7.6% to 556,100.
Financial performance and liquidity
| Metric | 2021 | 2020 | Change or context |
|---|---|---|---|
| Revenue | RMB1,692.5m (US$265.6m) | RMB1,295.0m | Up 30.7% |
| Gross profit / margin | RMB1,364.6m / 80.6% | RMB1,082.8m / 83.6% | Gross profit up 26.0%; margin down 3.0 percentage points |
| Operating income (loss) | (RMB32.6m) | (RMB56.7m) | Operating loss narrowed |
| Consolidated net income (loss) | (RMB37.6m) | RMB4.9m | Turned to a loss |
| Net income (loss) attributable to So-Young | (RMB8.4m) | RMB5.8m | Different from consolidated result because of non-controlling interests |
| Operating cash flow | RMB84.3m | RMB179.2m | Down 53.0% |
| Cash, cash equivalents and restricted cash at year-end | RMB1,343.8m (US$210.9m) | RMB1,145.7m | Up RMB198.1m |
Information services and other revenue rose 35.6% to RMB1,304.5m. Reservation services revenue fell 17.1% to RMB276.1m, while equipment and maintenance revenue contributed RMB112.0m following the Wuhan Miracle acquisition. Revenue mix shifted toward information services and equipment sales.
Operating expenses were RMB1,397.1m, including sales and marketing of RMB792.5m, research and development of RMB286.6m, and general and administrative expense of RMB252.2m. The company also recorded RMB65.9m of goodwill and intangible-asset impairment, comprising RMB48.5m of goodwill and RMB17.4m of intangible assets. The impairment related to the Leya reporting unit.
Year-end current assets were RMB2,027.4m and current liabilities RMB712.4m. Term deposits and short-term investments were RMB408.9m. The balance sheet reports RMB813.3m of total liabilities, including RMB105.9m of lease liabilities; it does not show conventional borrowings at year-end. Management said existing cash and expected operating cash flows should cover working capital and capital expenditures for at least 12 months. This is management’s assessment, not a guarantee.
Material changes versus prior periods
- Revenue growth accelerated to 30.7% from 12.4% in 2020, supported by higher information-service revenue, more paying providers and the addition of Wuhan Miracle.
- Reservation revenue declined despite platform growth: purchasing users decreased to 556,100 from 601,800, with COVID-19 disruption and weaker consumer sentiment cited as factors.
- Gross margin fell to 80.6% from 83.6%, as cost of revenue grew faster than revenue. Operating losses narrowed, but consolidated net results moved from modest income to a loss.
- Operating cash flow declined to RMB84.3m from RMB179.2m. Cash and restricted cash nevertheless increased, partly reflecting investment maturities and other financing and investing movements.
- The company acquired Wuhan Miracle and recognized substantial goodwill and intangible assets. It also repurchased 3,436,800 ADSs for approximately US$34.0m (RMB217.7m) during 2021.
Outlook, management commentary, risks and unusual items
The filing gives no quantified revenue or earnings guidance. Management described plans to strengthen user acquisition and brand-building, improve service-provider digital tools and customer acquisition, and expand across the medical-aesthetics value chain and adjacent consumer healthcare services. It said it believed its strategy positioned the business for sustainable growth when normal operating conditions returned.
- COVID-19: The company cited renewed outbreaks and restrictions, including 2022 lockdowns in certain Chinese cities, as risks to treatments, user demand, provider operations and revenue. The ultimate impact was not reasonably estimable in the filing.
- Take-private proposal: In November 2021, CEO and co-founder Xing Jin submitted a preliminary, non-binding proposal to acquire remaining Class A shares for US$5.30 per ADS. A special committee was formed; no decision or definitive agreement had been reached as of the filing date.
- China structure and regulation: The company has no equity ownership in its VIEs and depends on contractual arrangements whose enforceability is uncertain. The filing also identifies changing rules concerning foreign listings, cybersecurity, data privacy, advertising and online medical services. The company lacked an Audio-Visual License for certain video services, which it said generated an insignificant share of revenue.
- Data privacy: So-Young’s mobile app was removed from app stores in November 2021 over personal-information collection practices. The company reported submitting rectification materials in January 2022 and said it was notified in April 2022 that the measures complied with applicable rules and the app was reinstated.
- Audit access and listing: The filing said the PCAOB could not inspect the company’s China-based auditor and discussed potential HFCAA trading-prohibition and delisting risks. The filing’s timing estimates reflected rules and proposals as understood in 2022 and should not be treated as current status.
- Legal claims: So-Young reported paying or owing RMB4.76m in 2021 to resolve or satisfy adverse outcomes in intellectual-property cases. It disclosed 30 pending platform-related lawsuits at December 31, 2021, with approximately RMB6.5m in damages sought; management did not consider pending matters likely to have a material adverse effect.
- Capital allocation and control: No cash dividends were planned for the foreseeable future. Class B shares carry 30 votes each; the CEO beneficially owned all Class B shares and held approximately 83.4% of total voting power as of February 2022. The company also relied on controlled-company and home-country corporate-governance exemptions.
- Controls and audit: Management and the auditor concluded internal control over financial reporting was effective at December 31, 2021, and management said a previously identified material weakness had been remediated. Wuhan Miracle, representing 15% of assets and 7% of revenue, was excluded from that year’s internal-control assessment and audit.
The independent auditor issued an unqualified opinion on the consolidated financial statements and internal control, while identifying critical audit matters involving valuation of Wuhan Miracle acquisition assets and impairment testing for Leya.
Important facts for investors to verify
- Track reservation-service revenue, purchasing users and provider spending to determine whether the 2021 decline persisted after year-end.
- Assess the cash-flow trajectory and cash accessibility across the holding company, PRC subsidiaries and VIEs, including cross-border transfer restrictions.
- Review Wuhan Miracle’s integration, profitability, remaining acquisition payments and the assumptions supporting goodwill and intangible-asset valuations.
- Check the status and terms, if any, of the non-binding take-private proposal and the special committee’s process.
- Confirm current PCAOB inspection and HFCAA listing status, as well as any subsequent PRC filing, cybersecurity or licensing requirements.
- Monitor app-store availability, privacy compliance and the pending litigation docket, including any material resolutions or penalties.