Guotai Haitong: Build domestic brands to represent high-end Oriental aesthetics. Suggest increasing holdings in MAO GEPING (01318) and others.

Guotai Haitong released a research report stating that the road of professional beauty and high-end luxury beauty are quite different. Professional brands usually focus on makeup, while luxury brands cover perfumes, makeup, and skincare comprehensively. The bank believes that domestic brands are expected to expand their categories and upgrade their marketing, gradually consolidating brand value recognition in professional capabilities, and eventually growing into high-end brands representing Eastern aesthetics. It recommends sticking to building local high-end beauty brands and top beauty companies that differentiate their makeup brands, and advises holding: MAO GEPING (01318), Proya Cosmetics (603605.SH), FOREST CABIN (02657), etc. Guotai Haitong's main points are as follows: The Chinese makeup market is experiencing fluctuating growth, with a trend towards high-end and professionalization With the bonus of online channels, the Chinese makeup market has exploded since 2016, with the market size increasing from 28.5 billion to 59.3 billion from 2016 to 2019, with a high CAGR of 27%. After 2020, due to factors such as the epidemic, the decline in online traffic bonuses, and the saturation of core population markets, the growth rate of makeup is slowing down, with a CAGR of 1.40% from 2020 to 2025. In the background of slowing volume growth, the trend of high-end and professionalization of makeup is obvious. The bank classifies the top 50 makeup brands in China in 2025 as samples, with the total retail sales CAGR of mass market, high-end, and professional makeup categories from 2016 to 2025 being 13%, 17%, 24% respectively. The market share of high-end brands and professional brands has increased significantly from 16.9% and 5.3% to 31.5% and 16.3% respectively. In terms of pace, foreign professional makeup brands have grown rapidly in China since 2017 with the advancement of consumption upgrades, while local professional brands have accelerated their growth since 2021, ushering in a period of development dividend. Professional vs. high-end luxury makeup: Professional brands usually focus on the makeup category, winning with professionalism; high-end luxury brands have a comprehensive layout of perfume, makeup, and skincare, with aesthetics as the foundation Reviewing overseas brands, professional brands represented by MAC, Bobbi Brown, etc., have risen relying on the professional ability of makeup artists, product functionality, and color innovation, with the category mainly concentrated in the makeup field. The growth of the brand relies more on continuous product innovation, and later demands high operational and globalized capabilities, leading to many joining top beauty groups to expand under professional operations. In contrast, luxury makeup brands like Chanel, Dior, etc., rely on fashion, fragrances, and brand cultural accumulation, with makeup being an important carrier of brand worldview and lifestyle. They typically form a multi-category matrix of fragrances, makeup, and skincare, with competitive advantages arising from a long-term accumulation of aesthetics, cultural identity, and emotional value, thus having a higher ceiling. By 2025, the global retail share of top luxury makeup brands Chanel and Dior reached 44.2 billion and 38.4 billion respectively, higher than the global retail sales of about 19 billion for the top professional makeup brand MAC. The sales scale difference in the Chinese region is even more significant. In terms of category coverage, perfumes account for over half of the global market for luxury brands, with perfumes, makeup, and skincare each accounting for about one-third in the Chinese market, showing a balanced distribution; on the other hand, professional makeup brands usually focus on the makeup category, with a small expansion into skincare. Represented by MAO GEPING, local high-end makeup brands are gradually upgrading from professional brands to high-end brands representing Eastern aesthetics In the early days of its establishment, MAO GEPING relied on the professional endorsement provided by the founder's IP, and gradually accumulated brand stickiness through product accumulation and the concept of light and shadow aesthetics. Since 2008, the brand has maintained good cooperation with the Olympics and the national team. In 2018, MAO GEPING cooperated with the Palace Museum for cultural innovation, subsequently launching six seasons of "Oriental Charm" series products, gradually solidifying the brand culture and value recognition on top of professional capabilities. The bank believes that such domestic brands have the opportunity to further grow from "professional makeup" to "Eastern high-end aesthetic brands," achieving a leap from product competition to aesthetic discourse competition. Risk warning: Economic slowdown dragging down discretionary consumption; intensified brand competition; category expansion lower than expected.