Executive Summary / Key Takeaways

• So-Young International Inc. is undergoing a significant strategic transformation, pivoting from its foundational online platform (POP) to a vertically integrated "fast casual" medical aesthetic chain, So-Young Clinic, which has become its largest revenue-contributing segment.
• The aesthetic center business demonstrated robust growth in Q2 2025, with revenue soaring 426.1% year-over-year to RMB 144.4 million, driven by rapid network expansion and improving operational efficiency, including 19 centers achieving positive operating cash flow in June.
• So-Young's competitive advantage is rooted in its standardized service model, low customer acquisition costs (around RMB 100), diversified upstream supply chain, and advanced digitalization, differentiating it from traditional clinics and broader digital health platforms.
• Despite near-term net losses due to aggressive expansion and investments, the company maintains a strong cash position of RMB 998.6 million as of June 30, 2025, and projects aesthetic treatment service revenues of RMB 150 million to RMB 170 million for Q3 2025, with a target of 50 centers by year-end.
• The long-term vision targets 1,000 aesthetic centers within 8-10 years, leveraging a future franchise model and a robust pipeline of proprietary products like skin boosters and animal-derived collagen, positioning So-Young to capture a substantial share of China's rapidly growing light medical aesthetic market.

China's Aesthetic Revolution and So-Young's Vision

China's medical aesthetic market is on the cusp of a profound transformation, with the light medical aesthetic sector poised for substantial growth. Currently, the nation's penetration rate remains below 5%, significantly trailing mature markets like South Korea, which boasts over 20% penetration. This disparity signals a vast untapped opportunity, with projections indicating China's light medical aesthetic market could reach approximately RMB 340 billion by 2030. Amidst this burgeoning landscape, So-Young International Inc. ($SY), founded in 2013, is strategically repositioning itself to become a dominant force.

Initially established as a leading online platform (POP business) connecting consumers with medical aesthetic knowledge and services, So-Young has evolved. The company recognized the market's fragmentation, where over 95% of China's 20,000 medical aesthetic institutions are small, lacking unified standards and quality control. In response, So-Young embarked on a multi-year strategic transition, committing over RMB 1 billion in the three years leading up to Q3 2024 to build a vertically integrated ecosystem. This pivotal shift culminated in the Q4 2024 launch of So-Young Clinic, its branded aesthetic center network, designed to deliver high-quality, cost-effective, and standardized light medical aesthetics and anti-aging solutions. This "fast casual" model, as management describes it, stands in stark contrast to traditional, doctor-centric institutions, aiming for broad accessibility and high-frequency customer engagement.

The Technological Edge: Powering Standardized Beauty

So-Young's strategic pivot is underpinned by a robust technological framework and a commitment to innovation, forming a critical competitive moat. The company's core differentiated technology lies in its end-to-end digitalization and AI-driven solutions, enabling full process standardization from self-service booking and check-in to testing, consultation, and treatment. This digitized approach provides every user with a clear, transparent, and traceable medical experience, a significant advantage in a market often characterized by information asymmetry.

The company's R&D initiatives are deeply integrated with its upstream supply chain. Through the acquisition and integration of Wuhan Miracle Laser, a leading provider of medical aesthetic laser devices, So-Young has gained proprietary R&D capabilities. This allows the company to supply its aesthetic centers with high-quality, cost-effective equipment, such as its flagship IPL project, reducing reliance on expensive imported devices. The pipeline for new devices is active, with picosecond lasers and radiofrequency microneedling under development.

In the injectable segment, So-Young is collaborating with upstream manufacturers to launch new products, including skin boosters, expected to receive approval in Q4 2025, and Medical PLLA, both with exclusive China distribution rights. Furthermore, two proprietary animal-derived collagen products are anticipated to gain approval in 2026 or 2027. These self-controlled offerings are crucial for optimizing cost structure and enhancing gross margins within the aesthetic centers. The "so what" for investors is clear: this technological and supply chain integration not only ensures consistent service quality and reduces operational costs but also strengthens So-Young's pricing power and competitive differentiation, laying a solid foundation for scalable, profitable growth.

Competitive Arena: Differentiating in a Fragmented Market

So-Young operates in a highly competitive landscape, but its "fast casual" model and integrated approach provide a distinct advantage against both traditional medical aesthetic institutions and broader digital health platforms. Traditional players like Mylike and Yestar typically operate large, flagship clinics, offering a wide range of surgical procedures with high per-customer spend but lower visit frequency. Their operations heavily rely on individual "star doctors," creating vulnerability to staff turnover. In contrast, So-Young Clinic focuses exclusively on non-surgical anti-aging treatments, operating smaller centers (200 to 500 square meters) that are more widely distributed, akin to a fast-food model. This model generates lower per-customer spend but significantly higher frequency, with loyal customers visiting 6 to 8 times per year.

So-Young's competitive edge is further solidified by its superior customer acquisition efficiency. The company's average customer acquisition cost remains in the RMB 100 range, with over 70% of new customers originating from low-cost private domain traffic and referrals from existing clients. This is notably lower than the industry average and is a direct result of its community-driven platform and a "no aggressive sales or prepaid membership card" approach, fostering trust and organic growth. This contrasts with broader digital health platforms like Ping An Good Doctor (PNGAY), Alibaba Health (ALHBY), and JD Health (JDHYY), which, while possessing vast ecosystems and strong financial resilience, generally lack So-Young's specialized focus and deep community engagement in the medical aesthetic niche. So-Young's integrated supply chain, including its proprietary products and exclusive distribution rights, also provides a cost advantage and quality control that many competitors cannot match.

Financial Transformation: From Platform to Clinic-Driven Growth

So-Young's financial performance in recent quarters vividly illustrates its strategic pivot. In Q2 2025, the aesthetic treatment services segment emerged as the largest revenue contributor for the first time, generating RMB 144.4 million. This represented a remarkable 426.1% year-over-year increase and a 46% quarter-over-quarter surge, surpassing the upper end of the company's guidance. This growth underscores the robust momentum and market recognition of the So-Young Clinic model. The gross profit margin for aesthetic treatment services also expanded by approximately 5 percentage points sequentially, benefiting from improved operating efficiency.

Despite this strong growth in its new core segment, So-Young reported a net loss attributable to shareholders of RMB 36 million and a non-GAAP net loss of RMB 30.5 million in Q2 2025. These losses are primarily attributable to the rapid network expansion and ongoing investments necessary to scale the aesthetic center business. Total revenues for Q2 2025 were RMB 378.7 million, a 7% decrease year-over-year, largely due to declines in the legacy information and reservation services (POP business) and sales of medical products and maintenance services, which were down 35.6% and 28.1% year-over-year, respectively. The POP business, while experiencing revenue fluctuations, remains a key pillar of the group's profitability, and management is actively promoting synergies with the aesthetic centers.

The company maintains a robust cash position, with cash and cash equivalents, restricted cash, and short-term investments totaling RMB 998.6 million as of June 30, 2025. This strong liquidity provides the necessary capital to fuel its aggressive expansion strategy.

While the Q4 2024 results included a one-time goodwill impairment charge of RMB 540 million related to its Wuhan Miracle subsidiary, this was an isolated event, and the underlying operational trends for the aesthetic centers remain positive. The Beijing Head Aesthetic Center, for instance, has matured, with repeat customer revenue accounting for 88% of its total, demonstrating the long-term appeal of So-Young's standardized services.

Strategic Expansion and Future Outlook

So-Young's management is highly confident in its long-term growth trajectory, driven by the continued expansion of its aesthetic center network and deepening vertical integration. For Q3 2025, the company expects aesthetic treatment service revenues to be between RMB 150 million and RMB 170 million, representing a substantial 230.5% to 274.6% increase from the same period in 2024. This guidance reflects the ongoing ramping up of its branded aesthetic center network.

The expansion plan is ambitious yet disciplined. So-Young aims to open around 10 aesthetic centers in Q3 2025, expanding into both first-tier and core second-tier cities. The full-year target for 2025 is to reach 50 centers. Looking further ahead, the company has a long-term goal of achieving 1,000 centers within 8 to 10 years, a target that would still represent less than 5% of the total medical aesthetic institutions in China, highlighting the immense market opportunity. To facilitate this scale, So-Young plans to pilot 2 to 3 franchise centers in Q4 2025, an asset-light model that will play a crucial role in future expansion once proven.

Beyond physical expansion, the company is committed to strengthening its upstream business. The pipeline includes skin boosters expected to receive approval in Q4 2025, and two proprietary animal-derived collagen products anticipated for approval in 2026 or 2027. These product innovations, coupled with the scaling of the network, are expected to enhance bargaining power in procurement and further reduce consumable costs, reinforcing So-Young's "Sam's Club" inspired strategy of offering value-for-money pricing through end-to-end supply chain control.

Navigating the Path Ahead: Risks and Challenges

While So-Young's strategic transformation presents compelling growth opportunities, investors must consider several pertinent risks. The aggressive expansion of the aesthetic center network, while a key growth driver, requires significant upfront investment, contributing to near-term net losses. The ability to consistently achieve profitability at the individual center level, particularly for newer locations, will be critical. As of June 2025, 19 out of 29 centers were operating cash flow positive, and 13 were profitable monthly, indicating progress but also the ongoing ramp-up period for many locations.

The company's legacy POP business has experienced declining revenues, down 35.6% year-over-year in Q2 2025. While management aims to leverage synergies between the POP platform and aesthetic centers, the challenge of insufficient traffic compared to larger internet platforms could impact user and institutional retention over the long term. Furthermore, trade tensions between China and America, while having a minimal direct impact on the aesthetic center business (less than 10% of revenue uses U.S. imported equipment), could affect the upstream business, particularly Wuhan Miracle Laser's distribution of imported devices, potentially impacting pricing and sales volumes. However, So-Young views this as an opportunity to strengthen its domestic supply chain and promote import replacement.

Conclusion

So-Young International Inc. is at a pivotal juncture, executing a bold and transformative strategy to redefine China's medical aesthetic industry. By leveraging its deep understanding of consumer needs, a robust technological framework for standardization, and a vertically integrated supply chain, the company is rapidly scaling its "fast casual" So-Young Clinic network. This strategic pivot, while incurring near-term losses due to aggressive investment, has established a clear growth engine, with the aesthetic treatment services segment now leading revenue contributions.

The investment thesis for So-Young is anchored in its ability to capitalize on China's massive, underserved light medical aesthetic market through a differentiated, high-frequency, and cost-effective model. Its technological leadership in digitalization and proprietary product development, coupled with a strong competitive position in customer acquisition, provides a significant moat against both traditional clinics and broader digital health platforms. As So-Young continues to expand its physical footprint, refine its operational efficiencies, and introduce new proprietary products, its trajectory towards becoming a leading national chain brand with 1,000 centers appears increasingly plausible. Investors should closely monitor the pace of clinic profitability, the successful integration of its franchise model, and the continued expansion of its upstream product pipeline as key indicators of its long-term value creation.