Text/Offshore Currents
Editor/Chen Feng
Mao Geping, a high-end domestic makeup brand, has not yet let go of the "dream of going public".
On April 8, Mao Geping Cosmetics Co., Ltd. (hereinafter referred to as "Mao Geping Company") submitted a prospectus to the Hong Kong Stock Exchange, with CICC as its sole sponsor. Prior to this, Mao Geping submitted a prospectus to A-shares for the first time in December 2016, but in the following seven years, its A-share IPO boots were delayed, and in January this year, it voluntarily withdrew the prospectus.
Behind the switch from A-shares to Hong Kong stocks, Mao Geping's company is not a company that is "short of money".
In the past three full fiscal years, Mao Geping's revenue has grown at a CAGR of 35.3%, net profit at a CAGR of 41.6%, and its gross profit margin has also remained at a high level, close to 85%. Its cash flow position is also relatively stable, with cash and equivalents on its books at the end of 2023 reaching 1.138 billion yuan, an increase of 28% year-on-year.
In the prospectus, Mao Geping quoted data from Frost & Sullivan as the only Chinese company among the top 10 high-end beauty groups in the Chinese market, ranking eighth in terms of retail sales in 2022, and its MAOGEPING is the only domestic brand among the top 15 high-end beauty brands in the Chinese market, ranking 15th in terms of retail sales in 2022.
Source: Mao Geping's company prospectus
The performance is acceptable, but the listing road is not smooth, one of the reasons may be related to the turmoil of one of its investors in the past.
In 2015, Jiuding Investment acquired 10% of Mao Geping's equity for a consideration of 73.3 million yuan, becoming the company's largest external shareholder, but in 2018, Jiuding Investment was investigated by the China Securities Regulatory Commission for suspected violations of securities laws and regulations, and since then, many of its IPO projects have been suspended.
It is worth noting that before this switch to Hong Kong stocks, Mao Geping Company had already bought back the 10% equity in January, and Jiuding Investment no longer held any equity.
In addition, behind Mao Geping's good performance, there are also some potential challenges.
One of the most important challenges is how to break through the doubts about its R&D capabilities.
In the past few years, although Mao Geping's company has been growing, its R&D capabilities have been frequently questioned, and its R&D investment in 2023 will be less than 30 million yuan, accounting for less than 1% of revenue.
In this context, this time, Mao Geping, who seems to have cleared the obstacles, can go public smoothly?
1. Why is Mao Geping, who is "not bad for money", obsessed with going public?
Mao Geping's road to listing has been stumbling.
As early as 2016, Mao Geping submitted a prospectus to the China Securities Regulatory Commission, but in September of the following year, the IPO process was unexpectedly suspended after the company updated the prospectus, and Mao Geping's listing plan was put on hold.
It was not until October 2021 that Mao Geping's company successfully passed the meeting, and the IPO process finally ushered in progress.
In March 2023, Mao Geping Company updated the prospectus again and was accepted, launching a clarion call to the A-share market for the third time, but it was not until September that some of the documents of its listing application expired, and Mao Geping Company was terminated by the Shanghai Stock Exchange again, until January 4 this year, Mao Geping Company voluntarily withdrew its listing application, which also means that it failed to hit the capital market for the third time.
However, only three months later, Mao Geping Company made a comeback and turned to the Hong Kong Stock Exchange to submit a prospectus.
Behind this, why has Mao Geping been obsessed with going public for eight years?
One of the most direct purposes of IPO for enterprises is to leverage capital market financing to continue to expand the market. However, judging from the performance of the financial data on the prospectus, Mao Geping does not seem to be "bad money".
In 2023, the company's net cash from operating activities was $0.7 billion, and cash and cash equivalents also increased by $250 million. In addition, Mao Geping's revenue and profit growth in recent years have been good, and the performance is online, which is higher than the level of the beauty industry.
According to the prospectus, from 2021 to 2023, the company's revenue will be 1.577 billion yuan, 1.829 billion yuan and 2.886 billion yuan respectively, with an average annual growth rate of 35.2%, and the adjusted net profit will be 331 million yuan, 352 million yuan and 663 million yuan respectively, with an average annual growth rate of 26.18%.
Among them, the year-on-year growth rate of Mao Geping's revenue and net profit in 2023 is as high as 57.8% and 88.6%, which is higher than that of well-known brands at home and abroad, such as L'Oreal, Proya, and Shiseido.
When the prospectus was first submitted in 2016, Mao Geping's company faced internal and external troubles.
First of all, the pressure of competition from the outside world, at that time, not only did live streaming usher in the outlet, but the capital market was also in the tide of "consumer investment fever", and a number of new domestic beauty brands such as Perfect Diary and Huaxizi were established one after another, with the help of emerging online channels to conquer the beauty market.
However, from 2014 to 2016, Mao Geping's company's highest revenue was only 343 million yuan, and the highest net profit was only 54 million yuan.
In addition, Mao Geping company has been criticized by the outside world is "heavy marketing, light research and development", the company has not had its own product production and research and development base, like the vast majority of domestic makeup brands, long-term through the entrustment of third-party foundries to produce, which also leads to when a foundry at the same time for multiple brands OEM, the domestic beauty products on the market converge, obviously, Mao Geping company needs more funds to invest in the construction of cosmetics R & D and production base.
If it is said that it is "lack of money" to want to go public in the early days, now Mao Geping Company continues to impact the Hong Kong stock IPO, a very important reason is that in the past few years of its A-share impact IPO, Perfect Diary's parent company Yatsen E-commerce, Winona's parent company Bethany, Proya and other domestic beauty companies have been listed, in the long run, although Mao Geping's current performance is good and not short of money, but it needs more abundant funds to deal with potential market competition.
2. "China's Makeup Story", will the capital market pay for it?
Founded in 2000, Mao Geping's founder, Mao Geping, is a representative figure in China's beauty industry.
The first time Mao Geping became popular out of the circle was in 1995 when he gave Liu Xiaoqing the classic makeup he painted in the TV series "Wu Zetian", and the next year, Mao Geping and Liu Xiaoqing cooperated again, and through makeup, Liu Xiaoqing was able to play three different characters, and the China Film and Television Makeup Society also awarded Mao Geping the "Golden Image Award" for this.
Source: Mao Geping MGP official website
Mao Geping himself was extremely business-minded and realized the possibility of paying for knowledge early on.
With his perfect makeup skills and traffic blessing, in 1998, Mao Geping wrote a book about his insights and techniques on makeup, which was sold for as much as 200 yuan. Due to the good response of the market, two years later, Mao Geping immediately founded the "Mao Geping Image Design Art School" in Hangzhou, and since then, his makeup school has opened branches in many cities, and the makeup company of Mao Geping brand has also appeared.
With the rise of emerging Internet traffic platforms such as Station B, Douyin, and Xiaohongshu, Mao Geping cooperated with many celebrity Internet celebrity bloggers to release makeup tutorials and modification videos, making many popular videos with Mao Geping's brand out of the circle online, and many netizens left comments "I want to send my head to Mao Geping", and related topics detonated 600 million readings overnight.
Relying on the influence of Mao Geping's personal IP, as well as celebrity KOL endorsements, "makeup products" and other plays, from 2020 to 2021, Mao Geping's company's sales soared by 77.98%, and its revenue soared by 69.34%, breaking the circle quickly.
At present, Mao Geping's revenue sources are divided into three parts: two major beauty brands, flagship brands MAOGEPING and Zhiai Life, as well as makeup artist training.
Mao Geping's company's revenue structure, source prospectus
Among them, the flagship brand MAOGEPING focuses on the high-end market and is also the main source of revenue for Mao Geping, and the prospectus shows that the sales revenue of the MAOGEPING brand will account for 99.0% of the company's total product sales revenue in 2023.
The MAOGEPING brand mainly relies on the sales model of "direct sales of mid-to-high-end department store counters + e-commerce sales", which is different from most beauty brands that have emerged in the Internet era, and offline channels have always been the strength of Mao Geping's company. According to the prospectus, as of December 31, 2023, the company has 357 self-operated counters, ranking second in the country, with more than 2,500 beauty consultants in the counters, more than 3 million registered members in offline channels, and an overall repurchase rate of 32.8% in 2023.
This also makes the proportion of MAOGEPING brand department store channels remain above 50%. According to the prospectus, in 2021, 2022 and 2023, the company's offline channel sales revenue will be 966 million, 1.081 billion and 1.602 billion respectively, accounting for 64.6%, 60.8% and 57.6% of the overall sales revenue in the same year.
Thanks to its strong offline capabilities, Mao Geping has also created a lot of "customized exclusive products for offline channels", thereby increasing gross profit and widening the gap with peers.
However, Mao Geping's company's brand of Zhiai Life, which focuses on the low-end market, has never been done, and only one exclusive offline dealer has been retained.
At the same time, compared with product sales, its makeup artist training business accounts for a small proportion of the company's revenue, only 3.6%.
In summary, from the perspective of business conditions alone, Mao Geping Company is a good listing target. However, it also faces other go-to-market challenges.
Mao Geping's company is a typical family business, Mao Geping holds 57.26% of the shares, Mao Geping's two sisters Mao Niping and Mao Huiping hold 11.34% and 9.6% of the shares respectively, Mao Niping, Mao Huiping's son Xu Kejun and Ding Tao hold 2.5% of the shares respectively, Mao Geping's wife Wang Liqun's younger brother Wang Lihua holds 6.11% of the shares, and the Mao Wang family holds about 90% of the company's shares.
According to the prospectus, from 2021 to 2023, Mao Geping's company has paid dividends of 40 million yuan and 250 million yuan, and in 2024, it will first pay 500 million yuan at the shareholders' meeting in February, and in April, on the eve of the submission of the Hong Kong Stock Exchange, it will again declare a dividend of 500 million yuan to all shareholders, and naturally most of the funds will flow into the pockets of the Mao family.
A noteworthy question is that if the dividend payout before listing is so positive, what about after listing? Are investors in Hong Kong stocks willing to hold such companies for a long time?
In addition, the high proportion of family shareholding also means that there is very little third-party financing, and the company's internal management relies heavily on Mao Geping's personal IP and the Mao family, and the third-party supervision is vacant, and the outside world needs more time to observe the management of the family business.
3. To stand up to the label of "professional and high-end", Mao Geping has to make up classes
From "teaching", "planting" to "purchasing", looking at it, there is no problem with the first two Mao Geping companies, Mao Geping himself is the "godfather of beauty", the professionalism of makeup and teaching is undoubted, and the path of traffic play has long been run through.
But just as netizens commented, "What I lack is Mao Geping's makeup? What I lack is Mao Geping's hands." "There is still a gap between Mao Geping's makeup major and Mao Geping's product major, and it is necessary to continue to make up lessons to make consumers believe in the professionalism of his products and be willing to pay for high prices.
As we said above, "emphasizing marketing and ignoring R&D" is a point that Mao Geping's company has been questioned by the outside world for a long time.
According to the prospectus, from 2021 to 2023, Mao Geping's R&D investment will be 13.7 million yuan, 14.55 million yuan, and 23.98 million yuan respectively, all of which will not exceed 1% of the operating income of the year, while the average R&D expense rate of domestic and foreign peer beauty companies is basically above 2%, and in 2023, the annual R&D expense rate of Yatsen E-commerce, the parent company of Perfect Diary, will reach 3.3%, and the R&D expense rate of L'Oreal in 2022 will also reach 3.0%.
Correspondingly, Mao Geping's expenses on marketing have always remained high.
According to the prospectus, from 2021 to 2023, Mao Geping's sales and distribution expenses will be 763 million yuan, 962 million yuan, and 1.412 billion yuan respectively, accounting for 48.4%, 52.6%, and 48.9% of the total revenue in the same year, respectively.
"The success of our business depends on our ability to consistently attract and retain consumers through effective sales and marketing strategies, which are critical to increasing product sales, gaining market recognition and maintaining customer relationships. ”
It is worth noting that earlier, the Issuance Examination Committee of the China Securities Regulatory Commission issued an inquiry in 2021: "The reason and reasonableness of the company's gross profit margin higher than that of first-tier brands when its R&D capabilities and brand awareness are not as good as those of first-tier brands." ”
Mao Geping's gross profit margin has been stable at more than 80% in the past three years, according to the prospectus
In this regard, Mao Geping replied that the reason is mainly due to the difference in product structure (mainly high-end) and production mode (all outsourcing processing methods).
In contrast, it is not difficult to find that at present, the core competitiveness of Mao Geping is the core IP of Mao Geping himself, and the company's marketing resource investment.
In the long run, if it wants to successfully land in the capital market and continue to maintain an advantage in the market competition, it needs to raise its product advantages - not only the pricing should be high-end, but the product strength should also continue to improve.
For example, a very realistic contradiction is that the luxury caviar mask is Mao Geping's popular item, with a retail sales of more than 600 million yuan in 2023, and the retail sales of another best-selling product, the luminous traceless powder cream, will also exceed 300 million yuan.
For Mao Geping, this kind of single explosive product to bring more revenue is naturally a good thing, but there are risks, if it wants to go further and more stable, it needs to get out of the comfort zone and come up with more real high-quality products to grab the market, and the product itself is the key.
Mao Geping is obviously aware of this and is also accelerating the layout.
In 2023, Mao Geping's wholly-owned subsidiary participated in the investment of Huamei Kangyan (Suzhou) Biotechnology Co., Ltd., it is understood that Huamei Kangyan was founded by the former CEO of Intercos (China's largest makeup foundry) in China, the company is an enterprise mainly engaged in chemical raw materials and chemical products manufacturing, founded in 2021, focusing on functional skin care and makeup pre-makeup and foundation products, is a professional OEM/ODM enterprise integrating R&D and manufacturing.
In addition, Keyunshi Biotechnology, a wholly-owned subsidiary of Mao Geping Company, purchased an industrial land in Shangcheng District, Hangzhou at a price of 12.29 million yuan in April last year for the construction of Mao Geping's beauty R&D factory, and spent 593 million yuan in December to purchase a commercial land in Wangjiang New Town for the construction and development of Mao Geping's headquarters building project.
During this period, Mao Geping once publicly said, "The company's development has reached a new stage, and it needs to match the company's development plan." ”
In the prospectus, Mao Geping also said that about 10% of the raised funds will be used to strengthen production and supply chain capabilities, and about 9% will be used to enhance product design and development capabilities.
In summary, for Mao Geping, no matter whether the listing in Hong Kong can be successful or not, it needs to step out of the comfort zone of the past and strengthen its core competitiveness, which can not only strengthen its ability to resist risks, but also make investors more confident in its future.
(The header picture of this article comes from the official website of Mao Geping.) ）