20230421-招银国际-珀莱雅-603605.SH-1Q_in_line__2023_guidance_maintained_3页_789kb

Summary of CMB IGM Equity Research: Proya Cosmetics (603605 CH)

Company Overview

Proya Cosmetics is a China-based company in the consumer goods sector. It specializes in cosmetics, including skincare and makeup segments. As of the latest data, its market capitalization is RMB 7,104 million (approx. US $950 million), with a 3-month trailing revenue of RMB 277.46 million. Key shareholders include Hou Juncheng (34.7%) and Fang Yuyou (18.1%), indicating significant control by senior management.

Recent Performance

• 1Q2023 Results: Revenue increased by 29.3% YoY to RMB 1.6 billion, with net income up 31.3% to RMB 200 million. Gross Profit Margin (GPM) improved to 70%, driven by product mix upgrades, high repeat purchase rates (c30%), and successful hero product strategy, which accounts for 45%+ of revenue.
• 4Q2022 Recap: Results largely aligned with pre-announcements, showing 49% revenue and 52% net profit growth. This was attributed to favorable market conditions (peer share gains) and the successful launch of new brand Hapsode, despite broader lockdown impacts.
• Share Performance: Over 1-month: -5.0%; 3-months: 0.2% (absolute); 6-months: -3.9%. Current price at RMB 166.1, with a BUY recommendation and target price of RMB 184, indicating a +10.7% upside potential.

2023 Guidance and Growth Outlook

• Management reaffirmed a 23% YoY revenue growth target for 2023, alongside steadily improving GPM. The vesting condition for the ESOP targets 25%/23%/22% revenue/net profit growth for 2022-24.
• Challenges include higher selling and R&D expenses due to promotional campaigns and new launches, which may offset slight improvements in net margins.
• By channel, online sales expected to grow at >30%, while offline sales likely remain stable or flat. Both color make-up and skincare segments are anticipated to show growth momentum.
• Key events noted: Confident outlook for 618 sales, with no specific target disclosed, but emphasis on digital acceleration.

Financial Projections and Ratios

• Revenue Growth: Projected to increase steadily from RMB 5,812 million in 2022E to RMB 9,181 million in 2024E (25.4%, 26.2%, 25.1% YoY growth respectively). Net income rises from RMB 724 million to RMB 1,249 million.
• Valuation Indicators: P/E ratio decreases from 64.6x in 2022E to 37.4x in 2024E, suggesting improving earnings potential. Net gearing remains cash-positive across years. ROE and ROA are expected to rise, reaching 25.3% and 18.1% by 2024E.

Analyst Recommendations and Disclosures

• CMB IGM Rating: BUY, expecting returns exceeding 15% over the next 12 months. Consensus EPS and P/E analyses indicate strong upside.
• Disclosures: Standard disclaimers highlight risks such as uncertain market conditions, potential fluctuations in financials, and conflicts of interest. Information is based on public data and estimates, and past performance is not indicative of future results.

Other Key Notes

• Management has announced plans to dispose of shares: Chairman Hou and GM Fang will each sell up to 1.5% of Proya's shares, while other executives plan smaller dispositions.
• Overall, the report emphasizes Proya's strong position in cosmetics, digital channel growth, and potential for sustained performance despite external challenges. This assessment supports a BUY recommendation with a clear target price.