2026-01-13 11:56Summary of China Cosmetics Sector Conference Call Industry Overview - The China cosmetics sector is expected to experience a reset for higher-quality growth in 2026, moving away from reliance on high-cost Key Opinion Leaders (KOLs) and focusing on popular core SKUs. This shift has led to a contraction in Net Profit Margin (NPM) due to deleveraging impacts, despite improvements in Return on Investment (ROI) [1][2]. Key Trends and Insights - Consumer Acquisition Costs: Monitoring new consumer acquisition costs will be critical, especially as channel migration benefits diminish and the ingredient cycle remains ambiguous. Anti-involution policies will also play a significant role [1]. - Branding Strategy: Branding is anticipated to be the most effective strategy for consumer engagement and new product launches in 2026. Companies with high repurchase rates and cost-efficient omni-channel strategies are better positioned for success [1][2]. - Market Dynamics: The cosmetics market is expected to grow at a normalized rate, with growth projected at less than 1x GDP growth. The market is forecasted to see a 2.1% increase in beauty spending in 2026, with a mix of onshore and offshore market performance [17][18]. Company-Specific Insights - Mao Geping Cosmetics (MGP): Upgraded from Neutral to Buy with a target price increase from HK$89 to HK$105, reflecting a 27% upside. The company is noted for strong branding and a balanced channel presence, with a forecasted sales and net income CAGR of 23% and 22% from 2025 to 2027, respectively [2][9]. - Giant Biogene: Maintained as Buy, with a target price lowered from HK$71 to HK$46, indicating a 36% upside. The company is expected to recover with new skincare products and a focus on medical aesthetics, projecting sequential growth of -8%/+12%/+17% YoY for 1H26E/2H26E/2027E [2][9]. - Shanghai Jahwa: Target price reduced from RMB 31 to RMB 28, with a 22% upside. The company is on a turnaround trajectory with improving margins and cash flow [2][9]. - Proya Cosmetics: Remains Neutral as the company is expected to moderate organic growth while awaiting more execution on white space exploration [2][9]. - Botanee Biotech: Neutral rating with early signs of a potential turnaround but lacking clear growth drivers [2][9]. - Bloomage Biotech: Maintained as Sell due to downside risks in skincare and muted growth in medical aesthetics amid a mature product cycle [2][9]. Market Performance and Projections - E-commerce Trends: Tmall is expected to maintain strong growth momentum, supported by anti-involution measures. Douyin's performance has been softer than expected, with a significant decline in KOL channel performance [19][21]. - Sales Growth Expectations: The cosmetics sector is projected to see sustained GMV growth on Tmall, while Douyin is expected to experience a narrowing gap in growth rates compared to Tmall [20][21]. Conclusion - The China cosmetics sector is poised for a shift towards higher-quality growth in 2026, with branding and strategic channel management becoming increasingly important. Companies that adapt to these changes and focus on core products are likely to outperform in the evolving market landscape [1][2][19].