Beauty products and e-commerce services have "sufficient and necessary conditions". Head service providers have a competitive advantage to establish the online penetration of beauty products, and compared with other categories, it is more suitable to develop e-commerce services. mainly because: (1) high repurchase rate: the high repurchase rate of beauty cosmetics makes brands pay attention to improve consumer stickiness through activities such as new product promotion and shopping festival planning. And then there are higher requirements for online operation and marketing strategy. (2) High gross margin: high gross margin of beauty cosmetics can support higher commission rate of e-commerce service. From 2015 to 2020, the penetration rate of e-commerce channels for beauty products increased from 28.4% to 45.5%. With the rise of new e-commerce platforms such as Douyin, Xiao Hongshu and Pinduoduo, the penetration rate is expected to further increase, leading to the continued expansion of the cosmetics e-commerce service market, which is expected to reach 396 billion yuan in 2025 (2021~2025CAGR is 26.4%). Head beauty service providers have more competitive advantages: (1) head beauty service providers cooperate with international brands earlier to help brands seize the market, enhance their influence, have a full understanding of the brand, and gain the trust of the brand. (2) E-commerce services tend to be refined and diversified, and the scope of head service providers has gradually expanded from basic operation services to core services such as IT services, warehousing logistics, marketing and other core services, which can provide full-link services for brands. Compared with the business subcontracts of small and medium-sized service providers, it is easier to be favored by brands.
Deep ploughing Tmall beauty makeup e-commerce services, actively expand channels + rubbings + build own brand (1) channels: the company is mainly e-commerce retail business, Tmall platform revenue accounted for more than 90%, as of the end of 2022H1, the company has been re-elected Tmall six-star operation service provider for 7 times in a row, the operation strength is strong. With the rise of content e-commerce and live streaming e-commerce, the company continues to increase investment in emerging platforms such as Xiao Hongshu, Kuaishou Technology and Pinduoduo. As of 2022H1, the company has opened up 105 stores on Douyin and other platforms. In 2021, the revenue of other platforms reached 282 million yuan, while that of 2019~2021CAGR was 876%. The revenue share of other platforms increased from 0.1% to 6.8%.
(2) Category: the company mainly focuses on cosmetics, accounting for 97.5% of the revenue in 2021.
As of 2022H1, the company has entered into cooperative relations with more than 60 brands, including Sulwhasoo, Yayang, Hou, Schwarzenegger, Furifang, Orenasu and Fuludeya, while gradually expanding into food, clothing, toys and other categories. (3) Private brand: new consumer demand continues to emerge in the market segment. In order to supplement the demand vacancy of the operating brand, the company continues to incubate its own brand and launch Meitang, Yurong, etc.
Investment advice:
In the short term, the epidemic repeatedly disrupted the company's supply chain and logistics and put pressure on its operation in the first half of 2022. In the medium to long term, the company will actively expand Douyin, Little Red Book and other emerging platforms, build its own brand, expand food, services and other categories, and is expected to achieve steady growth. We estimate that the EPS of the company in 2022-2024 will be 0.62,0.91 and 1.08 yuan per share respectively, and the corresponding share price PE will be 18, 12 and 10 times respectively. Cover for the first time, giving a "buy" rating.
Risk hint
Repeated epidemic situation in some areas; brand cooperation change risk; inventory impairment risk; industry competition intensified.