Key investment points

Beauty care market: From the dividend period to the optimization of the competitive landscape, big international brands have steadily occupied the high-end market, and domestic products mostly start with high cost performance. Mao Geping is the only scarce domestic product that has broken through high-end barriers

The Chinese beauty care market had a CAGR of 11% to 485 billion yuan in 15-19, and a CAGR of 3% to 548 billion yuan in 19-23. The compound growth rate fell from 11% to 3%, gradually evolving from a high-growth industry to a mature industry.

1) Domestic vs. International: Top 20 brands in the Chinese skincare market, with 6 domestic products with a market share of 13.5% and international 14 seats with a market share of 33%; the top 20 makeup market, with 6 domestic products having a market share of 15% and an international market share of 44%. Among them, Chinese products are mainly new cost-effective brands that have emerged in recent years (e.g. Hanaxizi, Tangerine, Perfect Diary). Only Mao Geping has been established for a long time and is the only one to enter the high-end makeup market.

2) High-end vs. Volkswagen: The top 20 high-end beauty care brands are all international brands, with Mao Geping's No. 28 market share 0.8%; Volkswagen's TOP20 beauty care TOP20, with 9 domestic products with a 15% market share and an international 11-seat market share 25%.

3) Online vs. e-commerce: high-end beauty accounts for 40% to 50% offline, while popular domestic products account for 10% to 30% offline.

Mao Geping: Looking at Mao Geping's advanced path to high-end domestic beauty, what achievements has the company achieved? ——Maintaining about 30-40% CAGR, the profit level is 10-15pct higher than the industry average, and the family team management is stable

1) Finance: 21-23 revenue CAGR 35% to 2.89 billion yuan, net profit CAGR 42% to 0.66 billion yuan. 24H1 revenue +41% YoY to 1.97 billion yuan, and net profit to mother +41% YoY to 0.49 billion yuan. In addition, thanks to IP endorsements that shape a high-end brand image, the company's gross margin is about 85%, and the net profit margin is concentrated 20-25%, which is 10-15 pcts higher than the industry average.

2) Equity: Mao Geping, wife Wang Liqun, and concerted actors hold 70% of the shares. Among them, Mao Geping and his wife held 48% of the shares; in 24Q1, they took back 10% of Pu Shen Jiuding's shares at a consideration of 0.73 billion yuan, corresponding to the company's valuation of 7.3 billion yuan.

3) Management: Family business, most of the core executives other than the president are members of the Mao family. Founder & **** Geping has been deeply involved in makeup art for 40 years and is a famous makeup artist in China; his wife Wang Liqun is the vice chairman, his wife Wang Lihua is the vice president, and his sister Mao Niping and Mao Huiping assist in daily management; President Song Hongyi joined the company in 2002 and is responsible for the main brand market operation and management.

Highlights: Why is Mao Geping, an all-rounder that is “both necessary” and “necessary”, difficult to replicate? ——Strong IP endorsement+perfect channel segmentation+excellent offline makeup value-added service experience, etc.

1) Category revenue structure: 24H1 55% makeup +41% skincare +4% makeup training. Why can you do both makeup and skin care? Domestic brands usually have a clear boundary between skincare and makeup. For example, Pelayar/Winona focuses on skincare, PL/Caitang focuses on makeup, and the core is whether to have a brand first or a product. Most domestic products do not have strong IP endorsements. The market recognition process is big single product → strong series → strong brand, the clearer the brand positioning and the stronger consumer awareness; Mao Geping first has strong IP attributes, then develops a perception of big single products. Both makeup and skincare can be introduced, and offline makeup services can enable the growth of skincare products.

2) Channel revenue structure: 24H1 counter 44% +online direct sales 37% +distribution 12%. Why can it be both a counter and e-commerce? Domestic brands mostly focus on e-commerce, and high-end positioning and founder endorsements helped Mao Geping successfully enter the counter channel. Furthermore, in order to prevent e-commerce from seizing offline customers, Mao Geping segregated products and provided makeup services to core members offline to enhance the consumer experience and repurchase rate.

3) Customer group portrait: Why is Mao Geping's potential customer group profile so broad? Online Xiaokezhong products attract young fashion consumers with low customer unit prices; counter products and makeup services to retain customers who pay more attention to experiential consumption; at the same time, the consumer base also includes a large number of professional makeup artists and beauty bloggers, further enhancing the brand's power.

Future highlights: Makeup consolidates the competitiveness of base makeup and opens up new directions, and there is plenty of room for imagination in the skincare category

1) Makeup category: Mao Geping already has strong competitiveness in shadow, highlighter, and powder products, and there is still a gap between the sales volume of foundation products and air cushions compared to the sales volume of international top brands, so there is still room to strengthen the consumer mentality of base makeup products; in addition, categories such as lipstick, eyeshadow, and perfume currently account for relatively small revenue, and are expected to boost revenue in the future. It is recommended to pay attention to the starting trend of base makeup products and the pace at which new product categories are being launched.

2) In terms of skincare: Mao Geping's skincare products mainly comes from the three major products: caviar mask, caviar eye mask, and luxury skin care tanning cream. Compared to head skincare brands such as Pelaial/Estée Lauder, Mao Geping's revenue from large skincare products is not very high. There is plenty of room for imagination in the future, whether in terms of promoting new categories, expanding the consumer base, or increasing the repurchase rate. Focus on the pace of new skincare product launches, skincare mentality building, and brand concept building.

Profit forecasting and valuation

Mao Geping is an extremely scarce high-end domestic beauty product. With Mao Geping's scarce IP endorsement, a national makeup master, the category side takes care of makeup and skin care, and the channel side also takes into account department store counters and e-commerce direct management. The potential customer base is broad, and the company is committed to long-term healthy brand improvement. We are optimistic about the company's long-term development. We expect that in 24-26, the company will achieve revenue of 3.88/5.06/6.29 billion yuan, an increase of 34.5%/30.3%/24.3% year over year; net profit to mother of 0.88/1.17/1.46 billion yuan, an increase of 33.3%/32.6%/24.7% year over year. The market value corresponding to PE on December 24 was 28/21/17 times, respectively. It was covered for the first time, and a “buy” rating was given.

Risk Alerts

Risks such as domestic consumption recovery falling short of expectations, increased industry competition, channel expansion and new product promotion falling short of expectations.