Sinolink released a research report stating that it has begun coverage of Mao Geping (01318), assigning a "Buy" rating. This is based on strong products influenced by light and shadow & Eastern aesthetic concepts, professional endorsement from makeup artist IP, and enhanced online and offline collaboration, indicating a Bullish outlook on the growth potential of high-end domestic beauty brands. It is expected that the net income attributable to the parent company from 2024 to 2026 will be 0.95/1.27/1.53 billion yuan. Considering the rarity of the company's high-end positioning, a 24 times PE ratio is set for 2025, resulting in a Target Price of 67.67 Hong Kong dollars per share.

Sinolink Securities' main points are as follows:

The company is a high-end domestic beauty brand centered on the scarce makeup artist IP, with strong growth and profitability.

From 2021 to 2023, the compound annual growth rates of revenue and Net income are 35% and 41% respectively, with 1H24 seeing year-on-year increases of +41% for both; since 2022, both gross margin and net margin have shown an overall upward trend, reaching 84.9% and 25% respectively in 24H1. According to Euromonitor, in 2023, the Maogeping brand ranks 9th in China's high-end cosmetic industry with a market share of 3.9%, being the only domestic brand in the TOP 10. The company went public on the Hong Kong Stock Exchange on December 10th with an issuance price of HKD 29.8 per share, raising HKD 2.337 billion for brand development, channel expansion, international market entry, and strengthening production and supply chain capabilities.

In the Industry, there is an accelerating trend of domestic alternatives moving from color cosmetics to facial cosmetics.

In 2023, the market size for facial cosmetics is 31.2 billion yuan, accounting for over 50% of the cosmetics market, with a projected compound annual growth rate of 8.4% from 2023 to 2028, outpacing the overall growth rate of cosmetics at 7.5%; facial cosmetics also have better growth prospects, higher ceilings for individual products, and greater user loyalty. Previously dominated by international brands, domestic brands have started to make breakthroughs in categories like concealer, highlighter, and foundation based on Chinese skin characteristics and facial structure.

Recommendation Reason 1: Cosmetic IP empowers the brand to continuously break through the mainstream.

The effectiveness of makeup is determined by technique, aesthetics, and product; Maogeping's high professionalism and brand-marked tutorial videos create barriers, with follower counts on Xiaohongshu, Douyin, and Bilibili being 0.825 million, 0.62 million, and 0.91 million respectively, ranking high among makeup artist KOLs.

Recommendation reason 2: The dual wings of cosmetic and skincare are flying in tandem.

The cosmetic line is based on light and shadow aesthetics and Eastern aesthetics, with significant advantages in base makeup. Prodigious performance of long-lasting products such as concealers and highlighters (according to Lian Dan Lu, ranked in the top 3 in the Taobao system from 2021 to 2024). New caviar/feather cushion products are driving the continuous increase in market share for foundation (ranked 1st/5th on Douyin/Tmall in 2024). The skincare line focuses on pre-makeup maintenance and post-makeup repair, successfully creating a big-selling caviar mask, with retail sales of over 600 million yuan in 2023 and over 450 million yuan in the first half of 2024. Future drivers come from building a product matrix and using combinations of products from the same series, along with continuously updating and upgrading word-of-mouth products to enhance repurchase.

Recommendation reason 3: Deeply cultivate department store counters, laying a high-end foundation, while e-commerce focuses on rapidly increasing advantageous products.

Counters form a differentiated advantage by providing professional makeup testing services, high-quality customers, and high conversion rates and stickiness (registered member repurchase rate over 30%). By the end of the first half of 2024, there were 372 self-operated counters, with expected single-digit growth in new stores in the future. Online traffic and product upgrades strengthen repurchase and attract new customers, with continuous optimization in single-store performance. Focusing on core products, empowering founder IP, and live-streaming support quickly scales online; according to Chanter Mom, the GMV of Ma Ge Ping on Douyin from January to November 2023 is 0.69/1.1 billion yuan (surpassing Tmall).