Deeply involved in the cosmetics industry for 20 years, the multi-brand strategy has stood out. The company was founded in 2002 and focuses on R&D, production and sales of skin care products and mother and child care products. Based on the multi-brand operation strategy, the company successfully built various brands such as Han Shu, Ichiyo, and Red Elephant. At the end of '22, the company made adjustments at the strategic level, and the performance of the main brand Han Shu increased dramatically. According to the company's annual report, Han Shu completed a GMV of 3.34 billion on the Douyin channel in '23, an increase of 374% over '24H1 on the Douyin e-commerce skincare brand list'.

The triple drive of “product+marketing+channel” helps the main brand Douyin achieve impressive growth. 1) Product: The large single product, red waist, is the ultimate cost-effective anti-aging kit. Compared with competing products, the price advantage is obvious. Judging from Douyin's official flag, Han Shuhong's waist “water+milk+essence+cream+cleanser” box is priced at 399 yuan/set. Compared with competing products, the single product has a complete configuration and obvious price advantage. At the same time, it is very strong to give away original giveaways during big promotions. Judging from Han Shu's Douyin user portraits, consumers aged 18-35 account for 75%, and have formed the highest repurchase rate in the industry, which is highly compatible with Douyin's main customer base as a sinking market. We believe that under the rational consumption trend, the “high quality+low price” combination market space is expected to continue to expand; 2) Marketing: Forward-looking layout and short drama implantation brought phenomenal exposure to the brand. Since March 2023, the company and talent have begun collaborating on skits. Combining the timely software integration of the story, we analyzed the reasons why the company's differentiated layout of skits and achieved success. On the one hand, skits have a large organic traffic audience base, higher exposure efficiency, and can bring incremental new customers to the brand. On the other hand, skit has high user stickiness and short production cycle, and repeated brand implantation does not affect playback and flexible content customization.

As a brand that first invested in Douyin talent skits, the company enjoyed a first-mover advantage while steadily outputting high-quality, high-popularity skits, maintaining the sustainability of releasing brand volume, directly bringing phenomenal exposure and massive planting to Han Shu, laying a solid foundation for subsequent product retention and transactions; 3) Channel: building its own live streaming matrix+adjusting the broadcast structure to undertake the conversion of short drama traffic, and successfully achieved closed-loop marketing of global traffic. As the effects of skit streaming gradually became apparent, the spending power taken over by skits since July was taken up and transformed accordingly in the live broadcast room of the self-operated account. Currently, the brand has Han Shu Guanqi as the core, has more than 30 segmented self-broadcast accounts, and has a 24H uninterrupted live broadcast to create a “live broadcast room that never sets the sun”, with a focus on the main products. On the Dabo side, as the brand began to gain momentum, the company gradually reduced the depth of cooperation with leading experts in '23 and increased the depth of cooperation with top talent. On the one hand, it has strong content creation ability and is familiar with Douyin's operating rules; on the other hand, the cost of cooperation is significantly more cost-effective than that of top talent. Overall, after incorporating skits to complete the accumulation of the target customer base, the company accurately directed traffic to the main products promoted in the live broadcast room in the form of self-broadcast+broadcast, achieved closed-loop marketing of global traffic, and successfully achieved a high increase in both brand potential and sales.

Profit forecast and rating: We expect the company to achieve revenue of 7.13/9.11/10.62 billion yuan in 24-26, with year-on-year growth rates of 69.1%/27.9%/16.5%, respectively, and net profit to mother of 0.82/1.15/1.42 billion yuan. The year-on-year growth rates are 77.4%/40.4%/23.6%, respectively. The PE corresponding to the current stock price is 15/11/9 times, respectively. We selected Giants Biotech, which is also listed on the Hong Kong stock market, and Pelaea and Marumi shares, which have multiple brands and strong marketing, as comparable companies. According to Wind's consensus expectations, the average PE value of comparable companies in 2024 is 27 times. As one of the leading brands of high-quality domestic beauty, the main brand Han Shu has strong potential. It has successfully shaped strong brand potential on the Douyin channel. The rest of the brands are expected to replicate their successful model, further contribute to performance growth, and achieve a “buy” rating for the first time.

Risk warning: Competition in the cosmetics industry increases risk; channel competition increases risk; new product incubation risk.