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The medical aesthetic cosmetics industry is becoming a part of people's daily life with an unstoppable momentum. It not only satisfies people's pursuit of beauty, but also the demand and potential of the market is constantly expanding.
According to the National Bureau of Statistics, in 2023, the total retail sales of cosmetics in mainland China will reach 414.2 billion yuan, a year-on-year increase of 5.1%. In the first quarter of 2024, the total retail sales of cosmetics were 108.6 billion yuan, a year-on-year increase of 3.4%.
Domestic brands have also sprung up in this process, and they have achieved significant improvements in market share and brand influence. This progress has allowed investors to see the potential for long-term stable development of domestic brands. This is especially true for listed companies that excel in R&D, product innovation, and marketing.
However, there has also been some differentiation in the competitive landscape within the cosmetics industry. Judging from the annual reports of listed companies in the industry in 2023, some companies have begun to experience a decline in performance after experiencing rapid growth. Despite the overall positive market, competition among companies remains fierce.
Domestic brands are growing rapidly
China's cosmetics market has experienced rapid growth over the past few decades and has become the world's largest cosmetics consumer market. However, since 2023, the domestic beauty market has been somewhat weak due to a variety of internal and external factors, including the slowdown in consumer demand.
In terms of stock market performance, Wanlian Securities research report data shows that the performance of the cosmetics sector in 2023 will not be as good as the CSI 300 Index. Specifically, the cosmetics sector fell by 26.51% in 2023, ranking 30th among all Shenwan first-tier industries, 15.31 percentage points behind the CSI 300 Index. From the beginning of 2024 to date, the Shenwan Beauty Care Index has also fallen by 8.84%.
Despite the poor overall performance of the market, the domestic cosmetics market still contains huge growth potential. With the improvement of consumers' confidence in domestic brands and the continuous penetration of online sales channels, domestic brands such as Proya, Bloomage Biotech, Winona, etc., have achieved a counter-current in the market. In particular, in the 2023 "Double 11" shopping festival, Proya won the championship in the sales of skincare products on Tmall and Douyin, highlighting the growing market influence of domestic brands.
In the A-share market, these domestic cosmetics companies also performed well. From the perspective of market capitalization, companies such as Aimeike, Proya, Bloomage Biotech, and Bethany are among the best.
In particular, it is worth mentioning that the price-earnings ratio of Shanghai Jahwa, Fuerjia and Langzi shares is relatively low, about 20 times. In terms of price-to-book ratio, the price-to-book ratio of Shanghai Jahwa, Freda, Fuerjia, Haohaishengke, Langzi Shares, Shuiyang Shares and other companies remained between 2 and 4 times.
The price-to-earnings ratio and price-to-book ratio are two key indicators to measure the value of a listed company. When these two indicators remain low, it usually indicates that the market is more conservative in valuing these companies, which may mean that these companies have more room for growth and growth. Of course, investment decisions need to take into account a variety of factors such as the company's financial situation, and risks and opportunities coexist.
Performance differentiation, the strong will always be strong
In the cosmetics industry in 2023, there has been a marked differentiation in the performance of companies, with some companies continuing to consolidate their market positions, others facing challenges, with revenue and net profit growth slowing down, or even negative growth, and operating efficiency also declining.
From the perspective of revenue growth, Proya, Shanghai Jahwa and Bloomage Biotech have performed outstandingly and formed a leader in the industry. Proya and Aimeike, in particular, achieved revenue growth rates of 39.45% and 47.99%. However, not all companies can ride the wind and waves in this competition, and companies such as Bloomage Biotechnology, Freda, and Shuiyang Co., Ltd. have encountered considerable challenges in revenue and have declined.
In terms of profitability, Aimeike, Proya and Fuerjia ranked in the top three in the non-net profit index, showing strong profitability. Haohai Shengke, Shuiyang Shares, Langzi Shares and Freda and other companies showed significant growth momentum, with non-net profit growth rates of 141.52%, 180.8%, 16845.56% and 137.4% respectively.
These two indicators also reflect the inconsistency between revenue and net profit among companies. Some of the top companies in terms of revenue have not performed as well in terms of net profit. Among these companies, Proya's performance is relatively balanced, and it has maintained its industry-leading position in both revenue and net profit.
Although China's cosmetics market is vast, the competition is self-evident. In order to compete for market share, brands have offered the banner of price war, coupled with the serious homogenization of products in the market, consumers' loyalty to the brand is not high, making the competition in the entire industry more intense. In such an environment, the performance of many enterprises has been affected, and even negative growth has occurred.
In the face of challenges, domestic cosmetics brands realized that they could only remain competitive by continuously investing in R&D. They ensure the stable operation of the enterprise by increasing R&D efforts, launching innovative and differentiated products, reducing their reliance on marketing. In 2023, Bloomage Biotech's investment in R&D expenses will rank first in the industry, followed by Bethany and Aimeike.
With the rapid growth of e-commerce platforms, domestic brands have adapted to the changes in online channels more quickly, and have rapidly enhanced their brand influence by using online marketing and young consumers' sense of identity with domestic brands.
Taking Proya as an example, it has achieved a gorgeous transformation from offline to online by implementing the strategy of large single product matrix and optimizing the product structure. In 2023, Proya's online revenue will reach 8.274 billion yuan, a year-on-year increase of 42.96%, and online channel sales will account for more than 90%, becoming a leader in the industry.
Tap into stable growth points
ROIC (Return on Invested Capital) is a key indicator of the level of net profit a company can achieve with its invested capital, including shareholder funds and debt, when measuring the return on investment.
A high ROIC value means that the company is more efficient in the use of capital, can generate more net profits, and thus bring better return on investment. In 2023, the ROIC indicators of Aimeike, Proya, and Fuerjia will perform well, with 29.01%, 24.11%, and 16.54% respectively.
China's beauty care market in 2023 can be described as turbulent and transformative. From channels to marketing, from consumption to products, every change has injected new vitality into the market. These outstanding enterprises stand out in the fierce competition and win wide recognition in the market by virtue of their continuous investment and efforts in product research and development, brand building, marketing and other aspects.
Looking ahead, Wanlian Securities expects that with the gradual recovery of the economy and the implementation of consumption stimulus measures, market demand is expected to recover in 2024. From a longer-term perspective, as domestic beauty companies increase R&D investment and the rise of the national tide, companies with excellent product strength will become more prominent. At the same time, the strengthening of industry supervision will also be beneficial to leading enterprises operating in compliance. Therefore, it is recommended that investors pay attention to those domestic cosmetics companies that have strong performance in R&D strength, product innovation and marketing capabilities.
Cinda Securities pointed out that the current consumers tend to consume cost-effectively and pay more attention to the efficacy of products. Therefore, the use of new ingredients and new ingredients to create differentiated beauty products, and enhance brand influence through marketing stories is one of the key competitiveness of enterprises to achieve rapid growth. (Produced by Thinking Finance)■