Extensive product pipelines to cover consumers’ diverse demands. Cutia　is one of the few players in the broader dermatology treatment and care market in China equipped with fully integrated capabilities. The Company distinguished itself from peers in the industry which mostly specialize in certain fields, focusing on developing either dermatology care products or medications for treatment of certain types of diseases. Cutia has designed and assembled a comprehensive portfolio to target diseases with highly unmet medical needs across four major dermatological therapeutic areas: localized adipose accumulation management medication, scalp diseases and care, skin diseases and care, and topical anesthesia. Cutia’s current pipeline portfolio has 11 products, including 2 marketed products, 5 clinical-stage and 4 pre-clinical stage drug candidates.Leveraging the synergies among the diverse product portfolios, Cutia is able to constantly build brand awareness and gain market share, in our view.
　　Well-positioned to capture the growing market opportunities of China’s　broader dermatology industry. Modern sedentary lifestyle, poor dieting, stressful office jobs, COVID-19 related stress and other complex factors could induce endocrine disorders and immune related conditions, leading to dermatological complications such as alopecia, acne vulgaris, atopic dermatitis and localized adipose accumulation in China. The market size of broader dermatology treatment and care in China is expected to grow from RMB472bn in 2021 to RMB 1,039bn in 2030. In 2021, the per capita expenditure on broader dermatology treatment and care in China was RMB334, which is still far behind other developed countries (RMB1,828, RMB1,417 and RMB1,407 in the US, Japan and Korea), showing huge market potential. With the increasing income of residents in China, there is a rise of skin management consciousness and willingness to pay for dermatology treatment and care products. Leveraging its diverse product portfolio, Cutia is well-positioned to capitalize on the growth of China’s broader dermatology market and continue to expand its market share.
　　Initiate at BUY with TP of HK$33.21. We expect Cutia’s total revenue to reach RMB37mn/ RMB108mn/ RMB328mn in FY23E/ 24E/ 25E. We expect the Company to book net loss of RMB282mn/ RMB275mn/ RMB204mn in FY23E/ 24E/ 25E. We derive our TP of HK$33.21 based on a 13-year DCF model (WACC: 13.1%, terminal growth rate: 2.0%).
　　Risks: Risks relating to 1) development and regulatory approvals of product candidates, 2) reliance on in-licensing collaborations with third parties, and 3) manufacturing and commercialization of the product candidates.