Cosmetics industry: In the semifinals, Douyin is the core channel growth rate has slowed since 2022, and Douyin has become the core channel incremental. The growth rate of China's beauty industry has slowed since 2022, mainly due to: 1) the relatively weak performance of optional consumption; 2) the natural growth rate slowed in the later stages of cosmetic e-commerce channel transformation. Since '23, the growth rate of shopping has slowed, and Douyin has become a must-compete place for cosmetics brands.

The Douyin pattern shows the characteristics of “leading the way and the rise of new players”, and the rapidly changing operating methods demand high capacity requirements.

From talent delivery to mid-waist integration, from self-broadcast matrix construction to short drama marketing, etc., Douyin's requirements for brands in channel/product/marketing/supply chain have increased significantly, and luck+strength is indispensable.

Shangmei Co., Ltd.: One of the most complete domestic products with a brand matrix. Skincare+mother+baby+care. From popular to high-end, Shangmei adheres to a multi-brand strategy. Currently, it has formed a “3+N” brand pattern, covering the three major fields of skincare+mother+baby+care and a comprehensive price range of low, medium and high. 1) Han Shu: Launched in '03, transformed into scientific anti-aging ingredients in '21, focusing on the self-developed anti-aging ingredients Tiracle Pro and cyclohexapeptide-9. Revenue rose 144% to 3.09 billion in '23, and the market share rose to fifth place in the domestic market; 2) Little Red Elephant: established in 15 years, became number one in the maternal and child market in '19, and performance fluctuated as competition intensified, with 43% to 0.38 billion in revenue in '23; 3) Ichiyobi: established in '14, it was ranked first in the mask market in '16, followed by the patch circuit Overall weakening and competition have intensified the decline in revenue. The transition to effective skincare in '22 is still in a transition period, with revenue -33% to 0.36 billion in 23; 4) Newpage 1: Launched in '22, targeting mid- and high-end sensitive skin care for infants, revenue +498% to 0.15 billion in 23 years, and high-frequency data for 24 years is still high.

In terms of hard power, the R&D strength is strong, and the supply chain is flexible and stable. The US has both Chinese and Japanese research centers and a dual supply chain system. The core R&D teams all have senior R&D experience in international cosmetics groups. Currently, they have obtained various core patented ingredients such as Tiracle Pro and Cyclohexapeptide-9.

In terms of soft power, marketing is flexible and good at using efficient channels to quickly increase market share. Over the past 20 years of development in the US, on the marketing side, celebrity endorsements → variety titles → Douyin skits have repeatedly seized the trend; on the channel side, TV shopping → WeChat → live streaming brings goods, and has repeatedly seized channel beta opportunities to achieve explosive growth in performance.

We believe that the reason behind the US's repeated seizing on the cusp is the superior ability of management and the flexibility of the organizational structure.

Hard power has become the basic requirement for cosmetics leaders, and management flexibility and robustness are the scarce endowments of cosmetics companies. Shangmei was also slightly backward in the new media e-commerce dividend era in 17-22, but its management style was good at reflection and review, and dared to innovate and challenge. It was only possible to grasp the explosion of the Douyin channel in early 23, and Douyin traffic was not a flash in the past. With its strong operational efficiency, Shangmei ranked second among domestic products in 618 this year. Douyin has dominated the list for almost 1 year.

Future highlights: Abundant reserves of differentiated new products, refined channel management, adaptation of the new brand methodology 1) Han Shuhongman Waist is still increasing on Douyin. Upgrades have increased penetration rate and repurchase rate. Subsequent new products will be replaced by the White Blue Waist Kit and the Big Single Toner. Hongmanjiao 2.0 was launched in May '24, adding a new self-developed patented ingredient, cyclohexapeptide-9. White waist is targeted for whitening effects, and blue man waist is positioned to maintain and maintain stability, all accurately match the consumer upgrade groups in third- and fourth-tier cities. Most of the whitening and repair products on the market are essential products, and there are few smart kits. White and blue waist is a scarce position that is both cost-effective and highly effective, and is expected to take over Hongman Waist and expand the whitening and repair customer base with the same image. The toner uses an anhydrous formula, which is scarce. It contains self-developed Tiracle Pro anti-aging ingredients and ergothione, which has moisturizing, repair, anti-wrinkle, firming, soothing, and exfoliating effects. As a large product reserve, it is expected to contribute more performance growth in the future, while also resonating with red waist and white man waist series products. Follow the high-frequency data, white, blue waist, and the pace of increase in revenue share of toner.

2) The Douyin traffic spill encouraged Tmall and JD to resonate and return offline to create a new CS channel model. According to Jiuqian data, Han Shu Tmall's official flag benefited from Douyin traffic spillover and brand effects. The average monthly GMV for 23H1/23H2/24H1 was 18.67 million/36.67 million/40.83 million, respectively, increasing significantly. Furthermore, in January '24, the US government announced new products, new models, and new services exclusive to the CS channel. It is expected that offline will receive online traffic spillover and extend the consumption scenario.

Follow the GMV growth rate of high-frequency data on e-commerce platforms such as Tmall and JD.

3) Red Elephant+ one page ready to go, adapting Han Shu's methodology to create a second growth curve. Red Elephant has successfully created star products such as Chardonnay Ice Cream, Elementary School Cream, and 90 Safety Cream. Among them, Elementary School Cream was launched in a gap in the elementary school student care market. Differentiated and refined racetrack selection and strong product strength have formed a certain brand potential. One page focuses on the sensitive skin of infants. The brand tone co-created by medical research matches the mid-to-high-end positioning with a 23-year revenue of +498% to 0.15 billion. With Han Shu's successful experience and methodology, Red Elephant and One Page are expected to become the company's second growth curve. Watch the red elephant and the GMV growth rate.

Profit forecasting and valuation

Shangmei is a leading domestic cosmetics leader with multi-brand influence. The main brand, Han Shu, targets the effective skincare needs of consumers and upgrades in third- and fourth-tier cities. Compared with competing products, the kit has established a strong mentality and has established a strong mentality on the Douyin channel. Subsequent new products still have positioning advantages. At the same time, the new brand is expected to replicate the model and establish a second growth curve, which is optimistic about the company's long-term development. We expect to achieve 0.852/1.122/1.407 billion net profit in 24-26. On July 24, the market value corresponding to PE was 17/13/10 times, respectively, covered for the first time, giving it a “buy” rating.

Risk warning

Industry competition intensified, new product promotion fell short of expectations, channel expansion fell short of expectations, brand transformation and cultivation fell short of expectations, etc.