China cosmetic brands see rally despite global beauty downturn

Shanghai

WITH consumers staying at home for months and social gatherings banned, the global cosmetics industry has been dealt a major blow by the coronavirus pandemic. Yet low-cost, online-savvy local beauty brands in China have seen their shares rally as investors spy an opportunity for the home-grown outfits to take market share amid the crisis.

Hangzhou-based Proya Cosmetics Co has soared 88 per cent this year, reaching a record high in May and is now trading at 68 times forward earnings, the highest among listed beauty companies worldwide and surpassing giants such as Shiseido Co and Estee Lauder Cos. Another local make-up brand, Guangdong Marubi Biotechnology Co has surged 42 per cent this year against a 3.9 per cent decline in the Shanghai Composite Index and is now trading at 58.7 times forward earnings.

The bull runs come as the local brands' cheaper products and online-focused sales and marketing platforms seemingly suit a Covid-19 reality in which consumers have less purchasing power and avoid going to public places to shop.

"Domestic brands like Proya have a very fast online growth rate," said Dai Ming, fund manager with Shanghai-based Hengsheng Asset Management. "International high-end brands hold more market share offline, which makes their business suffer more during the pandemic."

In the first three months of the year, Shiseido saw a net income decline of 96 per cent to 1.4 billion yen (S$18 million) while Estee Lauder made a net loss of US$6 million compared to net earnings of US$555 million in the same period a year ago. In contrast, Proya's net income for the same period fell just 15 per cent to 77.7 million yuan (S$15 million), while Guangdong Marubi fell only one per cent to 118.8 million yuan.

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Analysts estimates compiled by Bloomberg show that Proya's full-year profit is expected to rise 25 per cent and Marubi 14 per cent, while Shiseido and Estee Lauder are expected to post declines and L'Oreal SA to show a slight gain.

The local Chinese brands have displayed a greater mastery of platforms popular with younger consumers, like live-streaming e-commerce, in which influencers demonstrate and tout items in a broadcast to fans who can purchase them in real time.

Proya works with top influencers to push its goods on platforms from Alibaba Group Holding Ltd's Taobao and Tmall to Bytedance Inc's Tiktok and has an endorsement contract with Chinese singer Cai Xukun, who has 30.4 million followers on Chinese social media platform Weibo.

Some analysts say that Proya and Marubi's gains have been excessive due to investors' desire for bright spots during the global crisis that's sickened more than 6.5 million people and killed over 390,000. Both companies are still minnows in market value compared to global beauty brands.

It's also unclear if their short-term success will translate into long-term share gain in the 478 billion yuan Chinese beauty and personal care market. As at 2019, L'Oreal leads in both skincare and colour cosmetics in China, while Proya ranks only 15th and 38th respectively, according to data from Euromonitor International. BLOOMBERG