During the platform period of industry development, the focus of each beauty leading work is divided, and at the same time, there are commonalities in creating large single products and expanding the ecological circle; Local brands are generally making up lessons for the rapid development of the previous stage and gaining momentum for the development of the next stage. Looking forward to the second quarter, both the demand side and the supply side of beauty cosmetics are improving marginally, and the low base caused by the epidemic in the same period last year is superimposed. The industry growth rate and sector valuation are expected to bottom out. However, due to the lack of driving force at the bottom, the recovery rate may be limited.
▍2023Q1, "optional" is superimposed with "fast-disappearing", which hinders the growth of beauty.
From January to February, 2023, the National Bureau of Statistics showed that the retail sales of cosmetics above designated size was+3.8% year-on-year, and the growth rate dropped by 3.2pcts； year-on-year; According to the magic mirror data, Amoy beauty cosmetics were-18.9% year-on-year (skin care was-16.9%, and makeup was-23%); According to cicada mother’s data, Tik Tok’s beauty cosmetics maintained a positive growth, and the growth rate dropped sharply year on year. According to the magic mirror data, Tmall’s 3.8 festival was greatly promoted, and the sales of skin care/make-up/beauty instruments all showed a significant decline. The impact of epidemic situation on purchasing power, frequent and vigorous promotion in the past, purchase behavior beyond real demand in live broadcast scenes, high "home" inventory, and the current introverted investment of brands and platforms in the off-season, efforts to reduce the dependence on promotion and promote daily sales are the main reasons for the unsatisfactory performance of beauty cosmetics in the first quarter.
▍ Differentiation and commonness coexist in the platform period of industry development, and medical beauty and skin care scenes are integrated.
During the platform period of industry development, the focus of brand work is divided, and at the same time, there are commonalities in building large single products and expanding the ecological circle.
1) Differentiation: international brands, raising the price of classic products and speeding up the innovation to maintain high-end positioning and brand image; Local brands make up lessons for the rapid development of the previous stage and prepare for the development of the next stage. For example, Huaxi Bio’s four major brands have been upgraded, in which Runbaiyan has changed from moisturizing and hydrating to hyaluronic acid technology to repair aesthetics, and Quadi has taken the initiative to slow down and promote the creation of anti-aging mind with more energy; Winona, Bettini’s main brand, will streamline SKUs and sort out channels; Giant creatures maintain the dominant position of dressing while exerting their strength in functional skin care products;
2) Commonality: Large items have both scale benefits and brand effects, which is the common direction of all beauty cosmetics leaders; Seeking the second growth curve and laying out multi-category and multi-brand skin care products, medical beauty equipment and functional food and beverage around "beauty" and "health" have become the common direction of Huaxi Bio, Betani, Polaiya, Marubi and other companies. Concept and new marketing direction: fine efficacy, integration of medical beauty and skin care scenes. The effects of anti-aging and repair are refined according to the induced reasons, product action mechanism and application scenarios, and the whole-layer anti-aging has become a common hot spot in skin care and medical beauty; AOXMED and other brands entered the blue ocean market for immediate and recent repair and efficiency improvement after light medical art.
▍ Outlook for the second quarter: After the winter, the industry growth rate and valuation are expected to bottom out.
On the demand side, further economic recovery, further recovery of business, social and tourism scenes and gradual digestion of "family" inventory will promote demand recovery; On the supply side, it entered the last season in April, and continued to plant grass in May, and it was greatly promoted in June 18. To sum up, superimposed on the low base caused by the epidemic in the same period of 2022Q2, the growth rate of the beauty industry in the second quarter is expected to bottom out; However, at present, there is a lack of large driving force at the bottom, and the rebound height is limited.
In terms of valuation, considering the development stage of China’s beauty cosmetics and the growth rate of the leading brands, we think that the PE of the A-share beauty brand leader is around 40x, and the PE of the H-share beauty brand leader is around PE30x. Factors such as reducing holdings may lead to a large deviation in the short term, but the growth resilience of the industry and the company in the medium term will promote the valuation repair.
▍ Risk factors:
Beauty cosmetics and medical beauty are optional consumption, and the recovery progress after the epidemic, insufficient willingness to consume, sustained recovery, etc. may have negative effects; Strict supervision or exceeding expectations; The progress of product development or approval may be less than expected, which will have a negative impact on performance.
This article comes from a selection of brokerage research reports.
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