Beauty economy' hit gold digging cosmetics sector

China Securities Journal cosmetics industry's high-quality track attribute has been continuously verified, showing strong sustained growth ability and anti cycle attribute. A recent news about tmall's "double 11" pre-sale has attracted people's attention to the cosmetics sector. The strong purchasing power of cosmetics consumers highlights the high-quality track attribute of the industry. Some organizations pointed out that benefiting from the "beauty economy", the domestic cosmetics industry has a high degree of prosperity, the industry scale continues to rise, and they are optimistic about the rising trend of leading companies in the industry. On the news page, tmall's "double 11" pre-sale in 2019 was launched on the 21st. According to the data released by tmall, the overall pre-sale transactions doubled on the first day, among which nearly 100 first-line new products were sold out, exceeding 10 million. It is worth noting that the sales volume of 7 beauty brands exceeded billion yuan in 10 minutes after the pre-sale. Among them, Estee Lauder brand achieved nearly 500 million yuan in 25 minutes after the pre-sale, surpassing the whole day turnover of last year's "double 11".

According to the data of total retail sales of social consumer goods released by the National Bureau of statistics on August 18, the retail sales of cosmetics in the first three quarters reached 215.1 billion yuan, an increase of 12.8% year on year, ranking first among all consumer categories. People in the cosmetics industry said that the high-quality track attributes of the cosmetics industry have been constantly verified, showing strong sustained growth ability and anti cycle attributes. With the development of nearly 30 years, with the change of residents' beauty consumption habits, especially in the low-end market and the trend of youth, the penetration rate and customer unit price are rapidly increasing, and the market capacity of daily chemical industry is rapidly expanding. From the perspective of industry development trend, according to Euromonitor data base, China's beauty and personal care market maintained strong performance in 2018, with the scale rising from 249.2 billion yuan in 2013 to 410.5 billion yuan in 2018 (the actual market scale will be larger if factors such as purchasing on behalf of others are taken into account), and the annual compound growth rate reached 8.7%. From 2013 to 2016, the growth rate declined, but since 2017, the situation has been improved. In 2018, the growth rate of the industry was 12.3%. China is the second largest cosmetics and personal care market in the world. What are the characteristics of the current industry? In the face of huge market space, which stocks are expected to benefit?

The research of Western China securities industry points out that the development of China's cosmetics industry has the following characteristics: first, high gross margin. At present, China's cosmetics industry is Low concentration competitive industries, but because consumers are willing to pay a high premium for the extra effect of products, the industry as a whole maintains a high gross margin of more than 60%; secondly, channel diversification, network channels and new marketing mode are expected to boost local manufacturers to overtake cars in corners and expand market share; finally, male consumption and healthy aging are the new growth points in the follow-up. In this context, leading companies in the industry are expected to achieve sustained growth through multi product, multi category and multi brand strategies. According to Shen wanhongyuan, the prosperity of domestic cosmetics industry will continue, the market share of local brands is low and the space is vast, and it is expected to grow into a local cosmetics group in the future.

Optimistic about two main lines: first, a domestic brand with social media marketing and 2C ability to face consumers directly; second, a comprehensive group with multi brand operation ability. The international group in the high-end market has outstanding advantages. Under the consumption upgrading or even grade skipping, the high growth is expected to continue, and the tax-free channel with price advantage will benefit. According to Southwest Securities, cosmetics have obvious long tail effect, high gross margin and stable cash flow. In recent years, China's cosmetics market has a strong growth momentum, and the industry dividend will surely benefit cosmetics companies. With the rapid change of consumer demand and the decline of brand loyalty, building a high-quality brand matrix is the main path for cosmetics companies to grow. We mainly recommend MARUMI and pelaia which have competitive advantages in product research and development, brand building, channel expansion, etc.