CITIC SEC Review of Overseas Beauty Leaders' 2026Q2 Results: High-end, Efficacy, and Fragrance Shine; Comprehensive Capabilities Win

CITIC SEC released a research report stating that, based on the sample of selected international beauty and personal care listed companies, global beauty demand showed signs of recovery in 2026H1, with leading international brands and Korean OEM/ODM companies performing relatively well, while growth momentum and the pace of profit recovery remained divergent. Focusing on China, international beauty leaders such as L'Oreal and Estee Lauder saw improved growth, while international personal care leaders such as P&G and Unilever saw growth rates gradually recover, and some Japanese and Korean brands remained under pressure due to channel adjustments. In the short term, the relatively strong performance of high-end and efficacy products in the Chinese market demonstrates structural growth opportunities, while the operational recovery of international brands may impose higher requirements on domestic brands. In the medium term, the operational divergence among international beauty and personal care companies and the overseas expansion of Korean beauty further indicate that sustained growth in the beauty and personal care industry requires support from multi-dimensional comprehensive capabilities including organization, R&D, products, channels, and marketing. We remain bullish on domestic cosmetics companies continuing to enhance their competitiveness based on organizational evolution, product upgrades, and marketing and operational advantages. Maintain the "Outperform" rating for the beauty industry. CITIC SEC's main views are as follows: Global beauty and personal care demand has recovered somewhat, with brand leaders and Korean supply chain companies performing relatively well. Since the beginning of this year, global beauty and personal care demand has gradually recovered, with some companies seeing accelerated sales growth, though operational and profitability performance remained divergent. Among brand companies, L'Oreal continued to outperform the market, Estee Lauder's operations gradually recovered, and APR achieved high growth driven by product momentum and expansion in European and American channels; Unilever and APR raised their full-year revenue expectations, while Kao and Ulta raised their revenue and profit-related guidance. Among supply chain companies, Cosmax and Kolmar Korea benefited from the expansion of Korean beauty exports and growth in customer orders to achieve accelerated revenue growth, though the pace of profit recovery still varied across regions. Brands under Coty and Beiersdorf are in a adjustment period, with performance still under pressure. China's high-end market is strong, Korean beauty is growing rapidly in European and American markets, and emerging markets still have growth potential. 1) International leaders, especially high-end brands, saw sales growth rates recover in the Chinese market: According to L'Oreal/Estee Lauder management, the Chinese beauty market grew approximately 1%-2% in 26H1, with the high-end market expected to reach high-single-digit growth while the mass market was relatively weak; L'Oreal and Estee Lauder have increased their online channel layout since 26Q1, both achieving high-single-digit to low-double-digit growth, with L'Oreal increasing investment in Douyin and expanding penetration in lower-tier markets; in addition, since 2Q26, the integration of domestic duty-free operators has gradually been completed, and brands such as Estee Lauder, Kose, and Coty have all reported that the recovery of travel retail channels brought incremental growth. 2) Korean beauty and efficacy skincare performed relatively strongly in European and American markets: APR's revenue in North America and Europe grew 261% and 363% respectively, and L'Oreal's dermatological beauty business grew rapidly in North America and Europe. 3) Emerging markets: Shiseido and Amorepacific's The Pacific saw improved growth in their home markets of Korea and Japan, L'Oreal/Unilever maintained mid-single-digit to low-double-digit growth in markets such as Latin America and India, while consumer demand in the Middle East was weak due to geopolitical conflicts. Efficacy-type growth leads, high-end outperforms mass; fragrance growth is superior, skincare is recovering, color cosmetics and personal care are divergent: 1) By positioning: Efficacy-type products have continued to perform relatively well since the beginning of this year, with efficacy businesses under L'Oreal and Beiersdorf leading in growth; at the same time, high-end outperformed mass, with L'Oreal and Estee Lauder's high-end businesses achieving mid-single-digit growth and accelerating in Q2 versus Q1, while mass cosmetics lines under NIVEA and Coty came under growth pressure. 2) By category: Fragrance led in growth among all categories, with Estee Lauder and ULTA achieving double-digit growth in fragrance, faster than other categories; skincare companies saw Q2 growth rates recover somewhat from Q1; while color cosmetics and personal care OEM/ODM companies saw sequential improvement in Q2 growth, but companies such as P&G saw slower growth in Q2. Leading brands strengthened brand investment, and operational efficiency improvements kept SG&A stable. Since the beginning of this year, international beauty companies' selling expense ratios have been stable with a slight decline, and expense structures have been optimized, with increased investment on the brand side. L'Oreal/Shiseido/Coty's brand and advertising-related expense ratios in 26H1 increased by +0.7/+0.5/+1.2ppts year-on-year respectively, reaching their highest levels in recent years, while Estee Lauder's FY26 consumer-facing investment increased by 7%; at the same time, companies reduced headcount and improved organizational efficiency. L'Oreal improved efficiency in IT and AI organizations, and Shiseido reduced personnel-related SG&A expense ratio by -2.0ppts in 26H1 through structural reforms/natural attrition/outsourcing fee reductions. Risk factors: Discretionary consumption is significantly affected by residents' purchasing power; domestic brands' product strength and brand strength improvement may fall short of expectations; risk of concentrated sales on e-commerce platforms; major changes in marketing channels; risk of continuously rising online selling expense ratios; risk of intensifying industry competition.