OEM cosmetics revenue increased by 76% in three consecutive years

OEM Aobao Group, which has more than 20 years of history, is heading for the capital market. Recently, Aobao Cosmetics Group Co., Ltd. (hereinafter referred to as "Aobao") submitted an application for listing on the Hong Kong Stock Exchange. After listing, Aobao Cosmetics Group Co., Ltd. intends to distribute no less than 50% of the dividends available. The company's fund-raising income is intended to further enhance its productivity and efficiency, expand and upgrade its existing facilities and expand its strategy to the southeast. Submarket, etc.

It is reported that Aobao is an old-brand washing and nursing enterprise in South China, as well as an OEM enterprise of Watson's and Bailard brands. At present, Aobao cosmetics has established a diversified customer base, covering 10 countries such as China, the United Kingdom and the United States. It is noteworthy that more than half of Aobao's future earnings come from commissioned manufacturing of OEM products, and the proportion of this part of revenue is increasing year by year. Specifically, from 2017 to 2019 (in the reporting period), the proportion of private brand manufacturing products was 30.5%, 27.3% and 24.2% respectively, while the proportion of commissioned manufacturing products was 69.5%, 72.7% and 75.8% respectively. This is also one of the risk points of Aobao.

On July 18, the reporter of Changjiang Business Daily sent an interview letter to Aobao about the impact of the gradual decline of the proportion of the company's own brand income and the planning of the company after listing, but the other party did not reply until the time of publication.

Recently, according to information disclosed by the Hong Kong Stock Exchange, Macao Bao submitted an application for listing of Hong Kong stocks. Its sole sponsor is Guotai Junan International, which intends to distribute at least 50% of the dividends after listing. Through the prospectus, the development of this old-brand shuffling and OEM company in South China has been disclosed in the past three years. According to the data, Aobao Group is a manufacturer and distributor of personal care and beauty products. The company has a history of more than 20 years. It adopts the business model of "OEM + OEM". All products are manufactured by Aobao Cosmetics (Huizhou) Co., Ltd., a wholly owned subsidiary of the Group. According to the prospectus, the revenue of Aobao Group in fiscal year 2017-2019 (March 31, 2018-March 31, 2019) was 604 million yuan, 693 million yuan and 835 million yuan respectively, and the net profit was 124 million yuan, 105 million yuan and 166 million yuan respectively. Among them, revenue increased 14.73% in fiscal year 2018 and 20.49% in fiscal year 2019. Journalists from the Yangtze River Business Daily noted that in 2018, Aobao's body care products ranked third and ninth in South China and China respectively, and Aobao's hair conditioner and hair care products ranked tenth in South China in terms of brand retail sales.

In addition, according to the Frost Sullivan Survey, Aobao ranked fifth among OEM manufacturers in personal care and beauty industry in China in 2018. However, it is noteworthy that in recent years, Aobao has shifted its focus to OEM business, undertaking OEM for Watson's, Bailard and Oudi brands. Among them, Aobao was the largest OEM manufacturer in Watson's early period. The prospectus shows that up to now, the company has 190 OEM customers, and Aobao has made it clear that most of the company's revenue comes from OEM business.

According to the financial data from 2017 to 2019, the sales volume of OEM of Aobao is 420 million yuan, 503 million yuan and 633 million yuan respectively, and the proportion of OEM in total performance is 69.5%, 72.7% and 75.8% respectively.

In addition, the prospectus shows that the gross profit rate of Aobao Group in fiscal year 2017-2019 is 37.42%, 35.21% and 37.37%. Aobao explained that the reason for the decline in gross profit rate in FY2018 was that the gross profit rate of domestic sales of hair care products, overseas sales of body care products and overseas sales of gift sets for processing fell.

It is not difficult to find that AOBao's agent processing business will affect the overall performance of the direct company to a large extent. At the same time, Aobao also points out that there are risks such as the change of product portfolio offered by OEM customers can affect earnings, and the business model of some OEM customers may not be sustainable.