In the third quarter, the structure of the cosmetic industry is relatively scattered, with significant differences in the operations of various companies against the backdrop of subdued overall industry demand.
According to the Wisdom Financial APP, GTJA released a research report stating that in the third quarter, the structure of the cosmetic industry is relatively scattered, with significant differences in the operations of various companies against the backdrop of subdued overall industry demand. In January-September 2024, the year-on-year growth of cosmetic social retail was -1%, lower than the overall social retail growth rate of 4.3 points, with Q1, Q2, and Q3 of 2024 showing +3.4%, -1.2%, and -5.5% respectively. The industry faced further weakness in the third quarter due to pressure from major promotions and overall consumption. The holding positions of beauty A-share companies in Q3 decreased compared to the previous quarter, while holding positions in Hong Kong stocks increased. Giant Life Sciences and Chicmax in Hong Kong accounted for 16.70% and 10.86% respectively, with an increase of 0.90% and 1.02% respectively, mainly due to the overall recovery of Hong Kong stocks and strong performance of the companies in H1 2024.
GTJA's main opinions include:
In Q3 of 2024, the year-on-year decline in cosmetic retail sales was -5.5%, showing a weakening trend in the off-season.
In January-September 2024, the year-on-year growth of cosmetic social retail was -1%, lower than the overall social retail growth rate of 4.3 points, with Q1, Q2, and Q3 of 2024 showing +3.4%, -1.2%, and -5.5% respectively. The industry faced further weakness in the third quarter due to pressure from major promotions and overall consumption. The Singles' Day sales have already started, and according to brand feedback and online data, this year's Singles' Day sales have been extended compared to 2023, with the first-day presale performance being flat but with expectations for brand sales to drive growth. Multiple brands on Douyin had high growth in October, with GMV approaching the total GMV of Singles' Day 2023, and demand is expected to improve month-on-month under the catalysis of major promotions.
The overall performance of the sector in Q3 of 2024 was relatively weak, with a slight increase in revenue year-on-year, but dragged down by some companies in adjustment periods, leading to a decline in profits and increased differentiation.
In Q1-3 of 2024, the cosmetic sector achieved an income and net income of 34.9 billion and 3.9 billion respectively, an increase of 5.6% and 4.26% year-on-year. In Q3 alone, revenue and net income were 10.2 billion and 0.8 billion respectively, with a year-on-year increase of 0.5% and a decrease of 24%. The revenue growth rate declined compared to the previous quarter, and profits declined due to some companies' drag in adjustment periods.
The sectors are significantly differentiated internally, with performance being more pronounced due to individual factors such as company strategy, product life cycle, and channels. Companies with strong brand and product momentum have shown better growth, with impressive performances from proya cosmetics, Runben Stock, Guangdong Marubi Biotechnology, Guangzhou Ruoyuchen Technology, and Jinbo Biotechnology. In addition, Fujian Green Pine has seen a substantial profit recovery; some companies have been affected by business adjustments/cost investments, resulting in noticeable profit pressure. The cosmetic industry structure is relatively dispersed, with significant differences in the operating pace of each company against the backdrop of overall weak industry demand. It is advised to pay attention to the subsequent strategies and organizational adjustment progress of each company.
The holdings of A-share cosmetic companies in 2024 Q3 decreased compared to the previous quarter, while those in the Hong Kong stock market increased. The sector's valuation has been restored, and the growth premium is gradually becoming evident.
In 2024 Q3, the average holdings of domestic institutions in cosmetic companies were 5.99%, a decrease of -3.59% compared to the previous period and an increase of +2.81% year-on-year. The quarter-on-quarter decline is mainly due to Q3 being the off-season for cosmetic consumption. Proya Cosmetics, Bloomage Biotechnology Corporation Limited, Syoung Group, Runben Stock, Dengkang Stomatology, and Jinbo Biotechnology have relatively high fund holdings. Hong Kong stocks, such as Chicmax and Fujian Green Pine, had their Stock Connect holdings at 16.70% and 10.86%, respectively, with an increase of 0.90% and 1.02% compared to the previous period, mainly due to the overall recovery of Hong Kong stocks and the strong performance of companies in H1 2024.
Due to the recovery of market sentiment, the valuation of the cosmetic sector as a growth sector has increased. Currently, many targets in the sector correspond to a 2024 PE ratio between 25-30 times. Small and medium market cap companies have shown growth premiums, with faster-growing companies such as Guangdong Marubi Biotechnology, Jinbo Biotechnology, and Runben Stock having a 2024 PE ratio around 30 times. However, overall, most companies have a 2024 PEG ratio of less than 1.
Relevant symbols:
A-share: Proya Cosmetics (603605.SH), Bloomage Biotechnology Corporation Limited (688363.SH), Syoung Group (300740.SZ), Runben Stock (603193.SH), Dengkang Stomatology (001328.SZ), Jinbo Biotechnology (832982.BJ), Guangdong Marubi Biotechnology (603983.SH), Guangzhou Ruoyuchen Technology (003010.SZ), Fujian Green Pine (300132.SZ).
Hong Kong stocks: Giant Bio (02367), Chicmax (02145).
Risk Warning: Downturn in industry prosperity; intensified competition on the brand side; new product performance below expectations, etc.
