Good News on Listing | Frost & Sullivan Assists Maogoping Cosmetics Co., Ltd. to Successfully Go Public in Hong Kong (1318.HK)

Mao Ge Ping Cosmetics Co., Ltd. (hereinafter referred to as 'Mao Ge Ping') successfully listed on December 10, 2024. The company plans to issue 7,058.82 million H shares, of which 90% will be international offerings and 10% will be public offerings. The maximum issue price per share is HK$29.80, raising a net amount of approximately HK$2.10 billion.

During the process of listing in Hong Kong this time, Frost & Sullivan mainly undertook the following tasks: helping the issuer accurately and objectively understand its positioning in the target market, using objective market data to discover, support and highlight the issuer's competitive advantages, assisting the issuer, investment banks and other intermediaries in completing the writing of relevant parts of the prospectus (such as the overview, competitive advantages and strategy, industry overview, business and other important chapters), helping the issuer complete communication with the Hong Kong Stock Exchange and investors, assisting investors in quickly understanding the market ecosystem and competitive landscape, and assisting the issuer in completing feedback on various industry-related issues from the Hong Kong Stock Exchange.

• The company is the only Chinese company among the top ten high-end beauty groups in the Chinese market;

   

• The company is the first high-end domestic cosmetics group to set up a dedicated counter in a high-end department store;

   

• The company has been deeply involved in the high-end beauty industry for over two decades and is a leading high-end beauty brand in China that continues to grow rapidly;

   

• The company continuously outputs talents and spreads the concept of Eastern aesthetics;

   

• The company is committed to excellence in product design and development, striving to create consistent high-quality products;

   

• The company is led by Mr. Mao Geping, a renowned makeup artist in the Chinese beauty industry, and creates brands with aesthetic concepts and entrepreneurial spirit.

According to the Frost & Sullivan report, in terms of retail sales for 2023, the company:

• Ranked seventh in the high-end beauty market in China, with the top six all being international beauty conglomerates;

   

• Its brand MAOGEPING ranks twelfth among China's high-end beauty brands and is the only domestic brand among the top fifteen.

Cosmetics can be divided into five categories: skincare products, personal care products, makeup, perfumes, and others. Beauty products refer to cosmetics that can improve skin condition and highlight or change the appearance of the face or body, mainly including skincare products and makeup products. According to a Frost & Sullivan report, calculated by retail sales, the market size of China's beauty industry increased from RMB 402.6 billion in 2018 to RMB 579.8 billion in 2023, with a compound annual growth rate of 7.6%. The market size is expected to continue growing at a compound annual growth rate of 8.6% from 2023 to 2028, reaching RMB 876.3 billion by 2028.

Data source: Analysis by Frost & Sullivan

According to brand positioning, the Chinese beauty industry can be divided into mass-market beauty brands and high-end beauty brands. High-end brands meet consumers' needs for exclusivity, high quality, and uniqueness by providing products with perceived value. The price range of high-end brands is usually at least 50% higher than the industry average, and their products are selectively sold in certain distribution channels, typically in high-end department stores. These high-end brands have a prominent brand image, focusing on exclusivity, aesthetic aesthetics, and lifestyle. Most leading high-end beauty brands are founded by celebrities or artists and use their names as the brand name. Mass-market brands usually strive to provide consumers with cost-effective products, require affordable prices, and often have a wider distribution network. According to Frost & Sullivan reports, calculated by retail sales, the market scale of Chinese high-end beauty brands has rapidly grown from RMB 133.4 billion in 2018 to RMB 194.2 billion in 2023, with a compound annual growth rate of 7.8%. It is expected to further grow at a compound annual growth rate of 9.9% to reach RMB 311 billion by 2028.

Data source: Analysis by Frost & Sullivan

According to sales channels, the Chinese beauty industry can be divided into online and offline channels. Driven by consumer experience and brand building value, offline sales have maintained steady growth. According to a Frost & Sullivan report, the retail sales of beauty products through offline channels increased from RMB 235.3 billion in 2018 to RMB 264.1 billion in 2023, with a compound annual growth rate of 2.3%. During the pandemic, restrictive measures posed significant challenges to offline channels, leading to a sharp decline in offline sales during this period. With the recovery of social activities and the release of consumer enthusiasm, offline channels are expected to continue recovering and maintain sustained and stable development in the future. In recent years, online sales channels have maintained rapid growth. Online channels rely less on physical stores and were therefore less affected during the pandemic. In the future, online channels will continue to maintain a high growth rate. The market scale of beauty products through offline channels is expected to further grow at a compound annual growth rate of 5.5% to reach RMB 344.6 billion by 2028.

Data source: Analysis by Frost & Sullivan

Offline channels mainly include department stores, cosmetics specialty stores, supermarkets, and other offline outlets. Other offline channels mainly consist of pharmacies and duty-free shops. The department store segment of offline channels refers to retail institutions that offer a wide range of mid-to-high-end consumer goods in different areas of the store, which is an important part of the offline landscape. Department stores not only meet consumers' needs for shopping but also provide customers with an exceptional consumption experience through exquisite space displays and professional consulting services, while promoting brand concepts. The influence accumulated by beauty brands through offline channels can further empower online sales.

Online channels mainly include comprehensive e-commerce platforms, emerging e-commerce platforms, and other online channels. Representative examples of comprehensive e-commerce platforms include Tmall and JD.com, while representative examples of emerging e-commerce platforms include Douyin and Kuaishou. Other online channels mainly include brand official websites, cross-border e-commerce platforms, etc.

Cosmetics refer to products that can highlight or change the appearance of the face or body. Calculated by retail sales in 2023, cosmetics accounted for about 20% of the beauty industry. China's cosmetics market is undergoing a transformation as consumer demand for beauty continues to upgrade, and makeup and skincare concepts spread through social media are also permeating the market. This trend has not only increased consumer usage of cosmetics but also driven the industry to cater to more complex consumer needs, diverse aesthetic views, and a deeper professional understanding of beauty products. These factors have collectively contributed to the diversification and enrichment of product categories, thereby driving significant market growth. Calculated by retail sales, the scale of the Chinese cosmetics market grew from RMB 93 billion in 2018 to RMB 1168 billion in 2023, with a compound annual growth rate of 4.7%. Due to reduced demand for cosmetics during the pandemic, the overall market scale of the cosmetics market declined in 2022, increasing by -14.1%, resulting in a lower growth rate over the past five years. According to a Frost & Sullivan report, the market scale of the cosmetics market is expected to grow further by a compound annual growth rate of 8.4% to reach RMB 1752 billion by 2028.

According to brand positioning, the Chinese cosmetics industry can be divided into mass-market cosmetics brands and high-end cosmetics brands. With people's increasing attention to beauty and personal appearance, the high-end cosmetics market has gradually shown a booming trend. Consumers have higher and higher demands for product quality, ingredient safety, and unique designs, and are more willing to pay for high-quality high-end cosmetics products. This trend has promoted continuous market expansion and attracted many well-known domestic and international brands to compete. In recent years, the high-end cosmetics market has received widespread attention and recognition. According to a Frost & Sullivan report, the market size of the high-end cosmetics market, calculated by retail sales, increased from RMB 34.6 billion in 2018 to RMB 47.1 billion in 2023, with a compound annual growth rate of 6.4%.

Data source: Analysis by Frost & Sullivan

According to sales channels, the Chinese cosmetics industry can be divided into online and offline channels. Driven by e-commerce platforms such as Tmall and Taobao, as well as emerging platforms like Douyin and Rednote, the cosmetics market has gradually shifted from being dominated by online channels. Calculated by retail sales, the online cosmetics market size increased from RMB 40 billion in 2018 to RMB 75 billion in 2023, with a compound annual growth rate of 13.4%, accounting for 64.2% of the total cosmetics market. At the same time, offline channels continue to grow.

Data source: Analysis by Frost & Sullivan

According to the Frost & Sullivan report, the high-end beauty industry in China is highly concentrated. Calculated based on retail sales in 2023, the top five beauty groups account for 55.4% of the market share, and they are all international beauty groups. According to the Frost & Sullivan report, based on retail sales in 2023, our group is the seventh largest high-end beauty group in China.

Data source: Analysis by Frost & Sullivan

MAOGEPING is a leading brand in China's high-end beauty industry. According to a Frost & Sullivan report, the top five high-end beauty brands are all international ones. Calculated by retail sales in 2023, they account for 32.1% of the market share, forming a relatively concentrated competitive landscape. According to the Frost & Sullivan report, MAOGEPING is the only domestic brand among the top fifteen high-end beauty brands in the Chinese market. Calculated by retail sales in 2023, it ranks twelfth, accounting for 1.8% of the high-end beauty industry's market share.

Data source: Analysis by Frost & Sullivan

The continuously expanding consumer baseThe growing demand for beauty and personalized expression among young people has become an important force in the beauty market. Especially with the popularization of the internet, young people are more exposed to various beauty information and product recommendations, which has sparked their interest in makeup. Mature consumers have raised their requirements for cosmetics and skincare products, and their consumption of high-end products has also increased. This is not limited to female consumers; with the transformation of male aesthetic concepts, male consumers have also begun to pay attention to shaping their own images and actively try using beauty products. In addition, makeup imitations in film and television works, games, and anime have gradually become one of the factors attracting young attention and promoting the growth of beauty product sales. As the income levels of residents in lower-tier cities steadily improve, people are increasingly pursuing personalized and fashionable lifestyles, making the purchase of beauty products a common choice. E-commerce platforms help unleash the purchasing power of consumers in lower-tier cities and further accelerate the growth of the beauty industry.

The awareness of domestic brands and products has increasedWith the improvement of China's economic level and residents' cultural identity, national aesthetic consciousness is awakening, and domestic brands will embrace greater development opportunities. Domestic brands are increasing investment in product quality, promotional marketing, aesthetic innovation, and other aspects to continuously enhance their brand influence. Through technological progress, domestic brands' product R&D capabilities and product quality have been continuously improved, enhancing consumers' confidence in domestic brands and products. According to a Frost & Sullivan report, the market size of Chinese domestic beauty products reached 2631 billion yuan in 2023, with a compound annual growth rate of 9.8% from 2018 to 2023, and is expected to continue growing at a compound annual rate of 10.3%, reaching 4302 billion yuan by 2028. The increasing recognition of domestic brands among consumers will further drive the growth of the domestic beauty market.

The development of emerging social media and e-commerce channelsThe development of emerging online platforms has promoted the diversification of marketing channels and stimulated the purchasing desire of potential consumers. Through social media, e-commerce platforms, and other channels, consumers can see the usage experiences and recommendation evaluations shared by other consumers, thus generating resonance, increasing their curiosity about products, and further motivating potential consumers to transform browsing into actual purchasing behavior. In addition, the development of emerging e-commerce platforms can provide consumers with a more convenient and rich shopping experience. Through these platforms, consumers can obtain detailed information and makeup tutorials for beauty products. The popularization and dissemination of makeup knowledge have further promoted the development of the beauty industry.

Industry concentration increasesAs the demand for beauty products continues to grow, the penetration rate of market-leading beauty brands shows a steady upward trend. These leading brands have successfully attracted a large number of loyal consumers by virtue of their high quality, innovation, and unique product positioning. They enhance their visibility and influence through various methods such as advertising, celebrity endorsements, and offline store experiences, thereby further expanding their market share. At the same time, competition among emerging beauty brands is also extremely fierce. Emerging brands are actively seeking differentiated competitive strategies to gain more market share. They are committed to launching personalized products that meet the needs of different consumer groups. In recent years, domestic beauty brands have made significant progress and can rival or even surpass international brands in terms of technology research and development, product quality, packaging design, etc. With the strengthening of the strength of domestic brands, they will further challenge the market position of international brands and strive for more market share.

Brand building and enhancementWith consumers' increasing focus on beauty and personal image, the Chinese beauty market is embracing opportunities for vigorous development. When purchasing products, consumers usually choose well-known and reputable beauty brands. Therefore, beauty brands attach great importance to brand building. Beauty brands are committed to making full use of various marketing channels to enhance their brand awareness. Brands actively participate in various fashion events and collaborate with social media celebrities to carry out joint brand promotions, continuously expanding market share and reaching potential target customer groups. In addition, beauty brands continuously improve their innovation capabilities, establishing brand differentiation through independent research and development, thereby continuously enhancing their brand competitiveness.

Product development investment continues to increaseCosmetic companies are continuously increasing their investment in product development, focusing on creating product functions and features, and improving product quality. More cosmetic companies are concentrating on the research and development of core active ingredients. Cosmetic companies persist in conducting in-depth research on different skin types, combining advanced science and technology, and continuously improving product quality to enhance their brand's core competitiveness. In addition to product quality, many brands are willing to increase their investment in product packaging design to win consumer favor. Investing in product quality and packaging not only meets consumers' needs for the functionality and effectiveness of cosmetic products but also brings consumers pleasant experiences. With the increasingly fierce market competition, cosmetic companies are constantly innovating in technology and making design improvements to attract more consumers.

Consumption patterns during market volatilityDuring market fluctuations, there exists a unique consumer behavior pattern known as the 'lipstick effect,' where consumers tend to abandon the purchase of expensive luxury goods and instead opt for high-end beauty products and other low-cost luxury items. This pattern may have a significant impact on China's beauty industry (especially brands positioned in the high-end segment such as MAOGEPING). However, since cosmetics are considered necessities, their demand remains resilient even as market conditions change. High-end brands that can effectively highlight product value and quality are more able to attract consumers seeking pleasure. With the continuous attractiveness of beauty products, innovative marketing strategies, and emphasis on value communication, the beauty industry can effectively withstand market fluctuations. Our industry consultants believe that as market conditions improve, it is expected that consumers' ability and willingness to consume high-end products will increase, giving high-end brands the opportunity to benefit from their established reputation and market influence.

Brand awareness and recognitionWith the improvement of living standards and the evolution of consumption concepts and models, brand awareness and loyalty have become important factors in consumer decisions in the beauty industry. Brand awareness is a comprehensive reflection of product quality, brand culture, manufacturing process, management services, marketing network, and public perception, requiring significant investment in funds, resources, and time. Existing first-tier brands have accumulated and developed richly in all aspects, with brand images deeply rooted in people's hearts, favored by consumers, and establishing brand barriers and market perception. New entrants will face challenges competing with existing enterprises in a relatively short period.

Product development and product quality capabilitiesOne challenge that the beauty industry continuously faces is developing new products to meet market demands at different stages of the industry. The development of beauty products involves life sciences, fine chemicals, dermatology, botany, and more. Cross-disciplinary applications and research require a complete product development process from basic research and development to engineering applications to meet the requirements of coordination and system integrity. Therefore, leading beauty companies with strong financial resources, talent, and research accumulation can more efficiently market new R&D technologies. In addition, product quality is key to brand development. Leading enterprises have sufficient funds and resources to purchase high-quality raw materials to ensure product quality and have mature quality control systems to ensure the stability of product quality, providing consumers with an excellent consumer experience. New entrants in the industry face technical barriers.

Management team and operational management capabilitiesLeading beauty companies have established management teams and advanced operational systems over the long-term course of their business activities, including procurement, production, supply chain, marketing, and sales. The management team has accumulated rich experience in product processes, quality control, and other areas, capable of ensuring that every link in the product process is efficient and compliant with regulations, thereby providing high-quality products. Compared to emerging companies, leading beauty companies have stronger risk resistance and can develop steadily and continuously. For emerging companies, acquiring this capability is a challenge.

Offline channel barriersThe product characteristics of beauty products make consumers attach great importance to offline experience. The offline layout of high-end beauty brands usually consists mainly of department stores and high-end cosmetics specialty stores. The natural geographical advantages of these offline channels make them have higher standards for selecting brands to enter. Department stores can provide consumers with a high-quality shopping experience. Brands can interact directly with consumers, quickly understand consumer preferences and changes in needs through brand counters, so as to adjust brand strategies in a timely manner. In addition, the offline department stores and high-end cosmetics specialty stores also have higher requirements for service staff. Brand counters are usually equipped with professional beauty consultants who provide consumers with professional advice and guidance, while also spreading brand concepts and promoting brand publicity. Emerging brands lack brand awareness and usually face challenges in expanding offline channels.

product homogenizationThe Chinese beauty market experiences product homogenization, making it difficult for consumers to build loyalty to a particular brand. It is challenging for beauty brands to differentiate themselves and enhance competitiveness by shaping their brand identity. Brands are required to discover their own characteristics in terms of product quality, positioning, research and development, marketing, etc., in order to stand out in the market.

Build consumer awarenessWith the booming development of the 'beauty economy' and the widespread popularity of beauty and skincare content on social media, Chinese consumers' demand for beauty products is increasing day by day. However, their cognitive ability regarding product quality, efficacy, and positioning is still developing, making it difficult for consumer demand to match their choices of products and brands. Beauty brands need to invest in cultivating consumer awareness to customize products according to the characteristics of their target audience, thereby increasing consumer loyalty and expanding their market space.

Rapidly changing market demandThe new generation of consumers has begun to grow into the main force of consumption, preferring to pursue fashion and rapidly changing their demands for beauty products. To cater to consumers, beauty brands need to launch products that meet their changing needs in a timely manner. This is a challenge for brands, which includes instant insight into consumer needs, formulating appropriate strategies, and making sufficient investments; otherwise, it can lead to investment losses and damage to brand reputation.