Core Viewpoint - The Chinese cosmetics industry is still in an upward cycle in 2025, but the upstream supply chain is experiencing a phenomenon of "increased revenue without increased profit" [3][4]. Group 1: Industry Growth and Challenges - The cosmetics ODM industry is witnessing significant growth, with leading companies like Cosmax and Babi achieving revenue growth rates exceeding 10%, and Babi's annual revenue growth surpassing 20% [3][6]. - Despite the revenue growth, profit growth among ODM companies in the Chinese market is showing signs of fatigue, with some companies experiencing profit declines and relying on asset sales to boost profit levels [3][8]. - The demand for ODM in the beauty industry is accelerating towards concentration, reflected in the rapid growth of leading ODM companies [5]. Group 2: Competitive Landscape and Financial Pressures - The changing beauty consumption landscape is creating more structural growth opportunities, with ODM companies betting on high-performance makeup and refined skincare in emerging markets [7]. - Intense competition is leading to financial pressures for ODM companies, as brand clients are forced to invest more in traffic, which in turn compresses prices and profit margins for suppliers [7][8]. - Babi's financial report indicates a net profit of 38.74 million yuan in 2025, down 14.64% year-on-year, attributed to increased market competition and strategic investments [8][25]. Group 3: Strategic Shifts in ODM Operations - The growth logic of the beauty ODM industry is shifting from "scale for profit" to a focus on high-quality development, with low-quality capacity being eliminated [10][11]. - Successful ODM companies are increasingly relying on deep collaborations with major clients, emphasizing research and development to enhance product market efficiency [11][12]. - Babi's long-term partnerships with major brands have led to the development of popular products, showcasing the importance of deep collaboration in driving growth [12][14]. Group 4: Investment in Research and Development - ODM companies are investing in R&D to enhance product competitiveness, with Babi's R&D expenses reaching 14.49 million yuan in the first half of 2025, a year-on-year increase of 8.02% [16][26]. - Babi has accumulated 145 authorized patents and developed over 130 proprietary raw materials, indicating a strong commitment to innovation [17][18]. - The focus on R&D is expected to pay off in the long term, as companies that invest in high-quality products and research will have a competitive edge in the evolving market [22][24]. Group 5: Global Expansion and Future Opportunities - Chinese ODM companies are increasingly gaining international clients due to better cost control and production efficiency, with Babi exporting products to over 30 countries [31][32]. - The shift from "order-based" to "coexistence-based" collaboration between brands and ODM companies is anticipated, allowing for higher quality growth and global supply chain integration [32]. - The long-term strategic investments in R&D and market expansion are expected to reshape the competitive landscape of the industry, positioning high-quality ODM companies favorably for future growth [30][32].