The Zhitong Finance App learned that Guotai Junan released a research report saying that the Q3 cosmetics sector achieved revenue and net profit of 89.68 billion yuan, -2% and +158%. The adjusted net profit was -10% year-on-year, and Q3 was weaker than Q2. In addition, the 2023Q3 cosmetics company fund holdings declined, mainly due to lack of catalysis during the off-season and poor overall online sales data. The bank believes that revenue in the Q3 cosmetics sector is weakening, differentiation among brands has intensified, leading brands have achieved steady growth, and share is expected to continue to increase. Furthermore, some brands with a low base plus optimized governance and operation are showing marginal improvement.

Guotai Junan's views are as follows:

The 23Q3 off-season cosmetics company had zero +3% year-on-year ratio, and Douyin maintained a relatively rapid growth rate among online platforms.

From January to September 2023, the cosmetics company had zero year-on-year ratio of +6.8%, which is in line with the total growth rate of the company zero. We estimate that the Q3 cosmetics company had a zero year-on-year ratio of +3%, weakening from month to month due to the base figure and the off-season. Looking at channels, the trend of decentralization of online platforms continues. According to Magic Mirror and Blue Eye, due to platform diversion and the 618 siphon effect, GMV in the beauty category of traditional e-commerce platforms declined year-on-year in Q3 in 2023. The growth rate of the Douyin platform slowed compared to 23H1, but the growth rate remained at the 20-30% level.

Revenue in the Q3 sector was -2% year-on-year, weaker month-on-month, and adjusted net profit was -10% year-on-year, further intensifying differentiation.

The 2023Q1-3 cosmetics sector achieved revenue and net profit of 293 and 2.7 billion yuan, +3% and 49%, and adjusted net profit of +12% after excluding Qingsong shares; the single Q3 sector achieved revenue and net profit of 89.680 billion yuan, -2%, +158%, adjusted net profit -10%, and Q3 was weaker than Q2. The Q3 gross profit margin was 58.9% yoy +4.82pct, due to product/business structure optimization; the Q3 sales expense ratio was +4.16pct to 38.64% yoy, which is expected to be mainly due to the increase in traffic costs of emerging platforms such as Douyin and the pre-launch of Double Eleven. The net profit margin after Q3 adjustments is 8.04% y-0.97pct. The division of companies within the sector intensified. Q3 Bettany and Polaire delivered steady results. Revenue growth of 20% + year on year was achieved, minus non-profit +40% and 26%. Freda and Marumi, which have a relatively low combined base of organizational operations, accelerated growth in Q3, and the performance of Huaxi and Jiahua was under pressure. Agency operations and upstream manufacturing continue to be under pressure.

The 2023Q3 cosmetics company fund holdings declined, mainly due to lack of catalysis during the off-season and poor overall online sales data.

The average shareholding ratio of 23Q3 funds in the cosmetics sector fell 2.14pct to 3.09% month-on-month. Bettany, Pléal, Huaxi Biotech, and Marumi stock funds had high shareholding ratios. As of the end of 2023Q3, they were 4.11%/3.78%/14.96%/2.81%, respectively, -4.59pct/-5.97pct/-1.09pct, respectively. Among them, Huaxi Biotech's high shareholding ratio was mainly due to the high holdings of the Science and Technology Innovation 50 Index fund. In terms of foreign shareholding, the shareholding ratio of Polarya Shanghai (Shenzhen) Stock Connect, which has continuously verified its high-quality performance, remained high at 19.61%. Bettany's Q3 Shanghai (Shenzhen) Stock Connect's shareholding ratio fell 4.07pct to 2.50% month-on-month; the overall average foreign shareholding ratio in the sector fell by 0.52pct to 2.22%.

It is recommended to increase holdings:

1) Posia (603605.SH) and Giant Bio (02367), whose brand potential is improving and which is expected to be catalyzed by major promotions;

2) Freda (600223.SH), Shanghai Co., Ltd. (02145), Bettany (300957.SZ), and Water Yang (300740.SZ), which have lower valuations and marginal improvements.

3) Expectations are bottoming out, and Marumi Co., Ltd. (603983.SH), Shanghai Jiahua (600315.SH), and Jiaheng Jiahua (300955.SZ) are expected to reach an inflection point in the future.

4) Jiabiyou (688089.SH), which has the dual logic of releasing production capacity and expanding overseas.

Risk warning:Industry downturn; competition intensifies; new product incubation falls short of expectations; data errors.