The Hong Kong stock IPO market has shown signs of recovery. According to LiveReport big data, in the first quarter of 2024, 12 new stocks were listed on the Hong Kong stock market, and the breakage rate dropped to 25% on the first day, with an average increase of 31%. At the same time, more blockbuster IPO projects are also being launched one after another, including some industry leaders who choose to switch to Hong Kong stocks, such as Mixue Bingcheng and Mao Geping.
Among them, Mao Geping may be a very special one. Not only because of its high-end positioning and scarcity, but also because it may have unexpected factors that breed unique market opportunities. It can be said that Mao Geping's IPO is worth in-depth discussion.
1. Find the real "blue ocean" and seize the market opportunity
Since 2023, the market of China's beauty industry has continued to expand, but the growth rate has slowed down and the involution has been upgraded.
Let's take a brief look at two sets of data: 1) according to the National Bureau of Statistics, in 2023, the total retail sales of cosmetics above designated size will reach 414.2 billion yuan, while the growth rate will be 5.1%, only higher than the -4.5% in 2022, and will not return to the pre-epidemic level; 2) According to the data of Orteo Consulting, during the Double 11 period in 2023, the average price discount rate of many well-known brands, including L'Oréal, will be lower than in 2022.
In this context, only by breaking the situation can national cosmetics companies win dividends and start a new round of growth. In addition to comprehensive strength, from the perspective of strategic routes, when domestic cosmetics companies collectively compete for "cost performance", there may be better opportunities in the high-end beauty field.
Although rational consumption is prevalent, consumers' requirements for product quality and service have not decreased, the demand for consumption upgrading still exists, and the high-end beauty market is even more resilient.
According to Frost & Sullivan, the market size of China's high-end beauty brands is expected to reach 295.7 billion yuan from 2022 to 2027, with a compound annual growth rate of 10.2%, which continues to be faster than mass-market beauty brands, and the gap between the two has widened.
At the same time, behind the collective volume of prices and the seizure of market share of mass cosmetics by domestic cosmetics companies, it actually means that the market itself will be very volatile, and the market competition is fierce, while the competition pattern of the high-end beauty market is relatively good.
According to Frost & Sullivan, in terms of retail sales in 2022, Mao Geping is the only Chinese company among the top 10 high-end beauty groups in the Chinese market, and MAOGEPING is the only domestic brand among the top 15 high-end beauty brands in the Chinese market.
The reason why the competition pattern of the high-end beauty market is better is also a premise, that national cosmetics brands are gradually able to compete with international brands, and Mao Geping has begun to have the opportunity to participate in the redistribution of this market.
Nowadays, the popularity of domestic brands and products continues to increase, especially among the younger generation, and the market competitiveness has been significantly improved. At the same time, it is still not uncommon for international brands to adapt to the water and soil, and consumer trust is loosening. For example, it can be seen that in 2023, the market share of domestic beauty products has surpassed that of overseas brands for the first time, and in January this year, Guerlain was ridiculed by the group for launching quantum cream, and the anxiety of big brands was gradually exposed.
In the long run, high-end Chinese cosmetics brands are expected to accelerate their development with a deeper understanding of Chinese consumers and a unique brand image.
Finally, it is worth noting that the marketing logic and play style of high-end brands are different from those of mass brands. For example, for high-end brands, the core competitiveness lies not only in the product itself, but also in whether the brand image can bring consumers a sense of superiority. The construction of brand image often requires long-term accumulation, which is not achieved overnight, so as to form a higher barrier and achieve the strong and strong.
As the only national cosmetics leader in the high-end beauty market, Mao Geping has a certain first-mover advantage, and is expected to continue to consolidate its leading market position and achieve high growth under the logic of "the rise of national cosmetics + the strong and the strong".
2. From three perspectives, reinterpret "light R&D and heavy marketing"
Focusing on the business model, the market is easy to misunderstand Mao Geping's "light R&D and heavy marketing", but in-depth analysis can lead to different conclusions. This can be interpreted from three perspectives.
First, R&D investment is not exactly equal to R&D capabilities.
In essence, it can be seen that Mao Geping's makeup business accounts for a relatively high proportion, with the proportion of revenue from the makeup business reaching 56.2% in 2023. In addition, Mao Geping has been deeply involved in the makeup business for many years and has rich experience, so he may achieve less investment but more results, showing higher R&D efficiency.
From the perspective of results, large single products and product matrices are good test indicators. According to the prospectus, some of Mao Geping's best-selling products have been widely recognized in the market, such as the luminous traceless powder series and the luxury caviar mask, and the retail sales of these two products will exceed 300 million yuan and 600 million yuan respectively in 2023. As of December 2023, Mao Geping has an extensive product portfolio, including 378 items covering two categories.
Second, the proportion of substantive marketing expenses is not high, and it is relatively restrained.
On the whole, Mao Geping's sales and marketing expenses account for almost half of the revenue, which leaves the market with the impression that "marketing investment accounts for a relatively heavy amount". However, in terms of separation, including tellers' salaries, this item will account for 33.4% in 2023, and marketing and promotion expenses will be 557 million yuan, equivalent to 19.3% of revenue, and the proportion of actual marketing expenses is not high.
Here we select L'Oreal and Proya as comparable companies, and compare them:
According to L'Oréal's 2023 financial report, L'Oréal's spending on advertising and promotion accounted for 32.4% of sales, an increase of 0.9 percentage points year-on-year, and its proportion will remain above 30% from 2021 to 2023.
In terms of Proya, the sales expenses in the first three quarters of 2023 will reach 2.271 billion yuan, which also accounts for more than 40% of the revenue, and the growth rate of sales expenses is higher than the growth rate of revenue.
It can be said that Mao Geping's marketing expenses are relatively restrained.
Third, heavy marketing is not a crime, the key is how stamina is.
From a broader perspective, domestic beauty brands started late in general, but have developed rapidly in recent years. At a specific stage in this process, the heavy marketing strategy does play a key role in the brand building and market share improvement of national cosmetics. To some extent, it is not a sin to focus on marketing, and it may also be a feasible way to market the brand first and then re-develop it.
When the brand foundation is solid, enterprises can gradually increase R&D investment, so as to achieve a balance between marketing and R&D and achieve sustainable development.
As mentioned above, the marketing logic and playing style of high-end brands are different from those of mass brands, and it is of strategic significance to form a brand advantage first.
Looking back at Mao Geping, he has achieved brand results under more restrained marketing, and the pace is relatively steady. At the same time, Mao Geping has reached the stage of increasing research and development, doing the right thing at the right time.
According to the prospectus, Mao Geping's R&D center under construction in Hangzhou plans to build an industrial space of more than 30,000 square meters to strengthen its product design and development capabilities, and is expected to be completed and put into operation within two years. At the same time, it strengthened its supply chain strength through the acquisition of foundries, and became the third largest shareholder of Huamei Kangyan (Suzhou) Biotechnology Co., Ltd. (founder Wang Yihua was the CEO of Intercos China, a world-renowned cosmetics foundry), and is expected to improve its product strength as a whole.
3. Solve historical problems and further pave the way for listing
In addition, there may also be some misunderstanding about Mao Geping's large proportion of dividends before submitting the statement to the Hong Kong Stock Exchange.
Generally speaking, pre-IPO surprise dividends are often interpreted by the market as an act of carving up the "family fund", which damages the interests of future shareholders. However, the main reason behind Mao Geping's move is to raise funds to repurchase shares, complete the "Jiuding system", and further pave the way for listing, the situation is different.
In January 2024, when Mao Geping voluntarily withdrew his IPO, Suzhou Pushen Jiuding was Mao Geping's fourth largest shareholder and the external shareholder with the highest shareholding ratio, holding 10% of the shares. Only more than three months later, in April, Mao Geping submitted a prospectus to the Hong Kong Stock Exchange, which showed that its shareholding structure had changed, and Suzhou Pushen Jiuding had transferred its shares and no longer held Mao Geping's shares.
From the point of view of the amount involved, Mao Geping declared a total of 1 billion yuan in dividends to all shareholders, 881 million yuan has been paid, and the total transfer price of Suzhou Pushen Jiuding shares is 730 million yuan.
Behind this, since the "collapse" of Jiuding Investment, the IPO process of many Jiuding shareholding companies has been blocked, and going to Jiuding has become the only way to accelerate listing. Perhaps because of this, Mao Geping submitted the application materials for the A-share IPO as early as 2016, and after subsequent on-site inspections, multiple rounds of strict inquiry and feedback, and multiple material updates, although he successfully passed the meeting, he has not been able to obtain approval.
Now, with the resolution of historical problems, Mao Geping's road to listing no longer has this kind of hard flaw, and it has become clearer and more worth looking forward to.
At the same time, this also lays the foundation for Mao Geping's long-term development after listing. The shareholding structure is the foundation of the corporate governance structure, which determines the behavior and performance of the enterprise, and a clearer shareholding structure can reduce investors' concerns about corporate governance and make it easier for investors to deeply understand the value of the company.
4. Conclusion
On the whole, China's beauty industry has set off a surging wave of the times, and the more incremental high-end beauty field is likely to be the future competitive highland. Mao Geping ran ahead early and became the only high-end beauty leader, and his growth and certainty should not be underestimated.
Based on an international perspective, in addition to China, the world's top five cosmetics countries have all given birth to the world's top ten beauty companies, and the emergence of the world's leading Chinese beauty companies is almost inevitable, it is only a matter of time, Mao Geping is one of the potential players.
I am glad to see that one day in the future, the Mao Geping brand will truly gain a firm foothold on the world stage and compete with more international competitors.