CHICMAX is one of the leading cosmetics companies in China. The company's Han Shu brand focuses on the Douyin channel based on brand characteristics, and has been the number one beauty brand on the Douyin channel GMV for 14 consecutive months since August 2023. CHICMAX has been implementing a multi-brand strategy for a long time, and many brands are expected to grow rapidly after the adjustment and climbing period. We believe that under the company's multi-channel, multi-brand, and multi-series construction, the company continues to deeply cultivate the sinking market, bringing impetus for continuous growth in the future.

For the first time, we covered CHICMAX and gave it a “buy” rating. The target price was HK$44.0, with a potential increase of 41.9%.

Leading domestic enterprise implementing a multi-brand strategy: Shangmei Group was established nearly 20 years ago. Currently, the main revenue comes from the Han Shu brand, but the company has also implemented a multi-brand strategy for a long time. Its brands cover the three tracks of skincare products, care, and maternal and child products, and the price range also covers the needs of consumers at all levels, from the public to high-end. Since the rapid rise of the Han Shu brand on Douyin in 2023, the brand has been Douyin's number one beauty brand for 14 consecutive months, driving the company's rapid revenue growth.

In terms of sub-brands, the company's mother and child brand Red Elephant and skincare brand Ichiyazi are still in the adjustment stage, while the new brand “Newpage One Page” launched in 2022 focuses on the skincare circuit for babies with sensitive skin with strong technical strength and celebrity endorsements, achieving rapid growth and becoming a new driving force for the company's rapid growth.

Match brand characteristics and seize channel dividends: We believe that Han Shu's success on the Douyin platform is not only due to the company seizing the dividends of the rapid growth of Douyin e-commerce, but also because:

(1) Select the main platform based on consumer portraits: Han Shu brand's consumer portraits (mostly consumers aged 18-34 in cities below the 3rd tier) are basically consistent with the user portraits of the Douyin platform; (2) Using skit dividends to return to the public eye: In 2023, Han Shu Brand collaborated with a number of Douyin skit creators to use product marketing embedded in the story to increase brand awareness and use closed-loop sales scenarios to drive sales growth; (3) Package products match consumer trends: the company sells and markets products in a package format to meet the consumer habits and needs of the platform and short drama audiences .

Can long-term growth be sustained? Although Han Shu achieved Douyin's consecutive championships that exceeded expectations, the market has some doubts about whether a single channel, a single brand, a single series, and its long-term continuous low price strategy can support the long-term growth of the company's revenue and profit. We believe that the company's current strategy and development strategy will help the company achieve long-term growth: (1) users from the main channel (Douyin) match the brand's consumer profile, and the company is also continuously expanding Taotian and offline channels; (2) implementing the “2+2+2” multi-brand strategy and developing multiple series of products; (3) firmly using the low price strategy to develop a large-scale, rapidly growing sinking market; and (4) driving an increase in profit levels through series and brand upgrades.

Valuation and ratings: Currently, the Han Shu brand is the main driver of the company's revenue. The company is deeply involved in a large-scale sinking market, driving up the price band by constructing a new series, and further opening up room for the Han Shu brand's revenue to rise. At the same time, the company is implementing a multi-brand strategy and is expected to build a second growth curve. For the first time, we covered US stocks and gave them a “buy” rating. The target price was HK$44 based on 15x 2025 PE (20% discount compared to domestic cosmetics leader Perea).

Investment risks: Overall demand in the cosmetics industry continues to slow; declining market spending intentions fall short of expectations; channel expansion falls short of expectations, and new product launches fall short of expectations.