By M. Marin

NASDAQ:SBC

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Growing Player in Medical Aesthetic Market

SBC Medical Group Holdings (NASDAQ:SBC), headquartered in Irvine, California, provides end-to-end solutions for aesthetics clinics, including back office support, purchasing, branding and marketing services that enable clinics to focus on offering their customers high quality treatments and services at affordable rates. The SBC management team has extension experience in the sector.

Franchise Model Provides Recurring Stream of High Margin Income

The company's franchise model provides a recurring stream of steady fee income that has climbed as SBC has grown its franchise network and as franchisees boost their sales and customer bases. SBC served a network of 166 SBC franchise clinics – 220 in total including clinics operating under other brands – throughout Japan, which puts its market share in Japan’s aesthetic medical market at an estimated roughly 31%.

The company continues to expand its footprint organically and through strategic M&A. Reflecting the early stages of its international expansion strategy, SBC owns and operates treatment centers in Ho Chi Minh City, Vietnam and in California, in addition to operations in Japan.

Medical Aesthetic Market: Japan has seen demand grow in recent years…

Japan has seen demand for aesthetic medical treatments grow in recent years, partially reflecting the impact of social media, with celebrities and influencers publicizing their own cosmetic procedures. Moreover, demographic trends including changes in the average age of the population, as well as lifestyle and other changes are also factors driving demand for aesthetic medical services. Younger and middle age people appear to be more interested in elective cosmetic procedures compared to older generations.

The rising acceptance of and popularity of aesthetic medicine in Japan and globally creates a tailwind for SBC’s growth initiatives, in our view. Moreover, market penetration in Japan is still relatively low (the company estimates it at about 10%), implying upside if demand continues to rise, as expected. Globally, the cosmetic surgery market was estimated to reach US$59.8 billion by year-end 2024, up from US$57.7 billion in 2023.

Revenue growth is highly correlated to franchisee expansion and broadening of service offerings. SBC recorded a 5-year revenue CAGR of 24% in 2018-23. Over the same period, the number of franchise clinics in its expanding network in Japan registered a 15% CAGR.

To continue to drive growth, SBC's goal is to maintain a solid pipeline of franchisee development opportunities across various clinic sizes and geographies. Prior to opening new sites or taking on new franchisees, the company's strategy is to conduct demographic analysis to understand market demand. The company has a strong balance sheet and generates steady cash flow to support its growth strategy. SBC had cash and equivalents of US$103.7 million as of June 2024 and long-term debt of less than US$15 million. In 2023, the company generated EBITDA of US$82 million, which equates to an EBITDA margin of 42.5%.