20220621-招银国际-珀莱雅-603605.SH-On_track_to_synergize_its_R_D_franchise,_hero_products_and_live-streaming_distribution_7页_944kb

Proya Cosmetics (603605 CH) Summary

Core Content

Proya Cosmetics is a Chinese beauty company that has demonstrated resilience and growth potential despite challenges from recent lockdowns in major cities like Shanghai and Beijing. The company is positioned to deliver earnings in line with its full year guidance for 2Q due to its strong e-commerce presence and controlled promotional expenses. Proya is initiated with a BUY rating, and it is considered a top pick alongside Botanee.

Main Points

• E-commerce Dominance:
  Proya has warehouses in Hangzhou, Chengdu, and Guangzhou, with 85% of sales coming from e-commerce platforms. This reduces exposure to traditional retail disruptions and provides better earnings certainty.

• Hero Product Strategy:
  Proya has developed two key hero products:

  • Red Ruby Essence (anti-aging serum)
  • Double-anti Essence (anti-aging for younger skin)
    These products are based on proprietary ingredients such as supramolecular retinol and hexapeptide, which are less irritating and effective for anti-aging, respectively.

• R&D and Innovation:
  Proya has a strong R&D capability, evidenced by a high number of invention patents (92 by 2021), and has partnered with global firms like LipoTrue, Ashland, BASF, DSM, and Croda to enhance its product portfolio and supply chain. The company has also established a new R&D center in Shanghai and a hair care research hub in Japan for the "Off & Relax" brand.

• Online Growth and Market Share:
  Proya is expected to achieve 40%+ growth in its online business over the next few years, which is a key driver for its 26% 3-year revenue CAGR (2021–24E). The company is also leveraging livestreaming and KOL marketing to boost sales and brand awareness.

• Financial Outlook:
  The company is projected to maintain a steady revenue growth of 23.5–25.1% annually from FY21 to FY24. Its gross margin is expected to expand by 1.3pp per year, and net margin is projected to increase slightly. The target price is RMB 184, implying a +17.5% upside from the current price of RMB 157.

• Valuation:
  The stock is currently trading at 43.6 P/E, which is +1sd above the average valuation since 2019. The target price is based on a 43.5x mid-23E P/E.

Key Financial Metrics (YE 31 Dec)

Investment Risks

• Failure to execute its hero product strategy effectively
• Product recalls (e.g., sunblocker recall affecting 2Q performance)
• Undisciplined promotional efforts from domestic and foreign brands
• Market volatility and regulatory changes in the beauty sector

Key Ratios

Strategic Highlights

• "Morning C Night A" Formula: A popular skincare routine using vitamin C and A-based products, which Proya has been a key promoter of.
• Product Innovation: Continuous upgrades and expansions of core products, including the introduction of new skincare lines and makeup items.
• Market Positioning: Proya's hero product strategy and omni-channel marketing have helped it gain a competitive edge in the Chinese beauty market.
• Patent Leadership: Proya holds 92 invention patents (46% of total), outperforming many other domestic and international competitors in terms of R&D capability.

Conclusion

Proya Cosmetics is well-positioned for growth with a strong e-commerce focus, innovative product development, and a robust R&D pipeline. Its ability to navigate the pandemic and maintain a solid sales momentum, coupled with its self-sustaining business model, supports its BUY rating. The company is expected to deliver industry-beating revenue growth and improve gross margins over the next few years. However, the potential risks of product recalls, marketing missteps, and market volatility should be considered before investing.