The Zhitong Finance App learned that Cinda Securities released a research report saying that the current cost-effective consumption trend is gradually becoming a trend. Consumers pay more attention to efficacy when purchasing cosmetics. New ingredients and ingredients are still one of the core competencies of creating differentiated beauty products and writing marketing stories to achieve excellent growth rates; as the segmentation circuit matures, the importance of establishing comprehensive operating capabilities for brand mentality is also highlighted. Suggestions: (1) Focus on brand performance to verify that management adjustments/brand power continues to deliver results: Giant Biotech (02367), etc. (2) Focus on the layout of the targets of affordable cosmetics: Freda (600223.SH), etc. (3) Focus on those that are currently planning to go overseas: Perea (603605.SH), etc.

▍ The main views of Cinda Securities are as follows:

Since 2019, E.L.F.Beauty's performance has grown rapidly and its stock price has risen significantly.

Established in 2004, e.l.f. Beauty is an American cosmetics company that combines affordability and quality. The company's stock price has increased by 2634.59% in the past five years (from March 4, 2019 to March 1, 2024), and has increased by 50.62% since this year (as of March 1, 2024). In terms of performance, the company's revenue grew from US$283 million in 2019 to US$579 million in 2022, with a CAGR of 27%; net profit increased from US$18 million in 2019 to US$62 million in 2022, with a CAGR of 51%.

Reviewing the successful experience of e.l.f. Beauty, the main points are as follows:

(1) E.L.F. Beauty products are affordable and of excellent quality, and are widely loved by Gen Z consumers. (2) e.l.f. Embracing social media first, gained widespread attention through Tik Tok's “eyeslipsface dance challenge”, and increased brand awareness by operating brand accounts on Instagram, YouTube, and BeReal, and establishing more connections with target consumers (Gen Z). (3) Cross-border cooperation with Gen Z jeans brands to achieve brand breakers.

e.l.f. withdrew from the Chinese market on March 31, 2023, due mainly to:

(1) In recent years, new domestic makeup brands have sprung up endlessly, which has led to the squeezing of foreign-funded makeup market share. (2) Emerging domestic brands usually attract young consumers with “high value” packaging or unique tone, and foreign-funded affordable cosmetics are uncompetitive in terms of both tone and cost performance. (3) Most of the up-and-coming domestic makeup brands adopt a “short and fast” approach, including IP cross-border co-branding, rapid promotion, deep ties with well-known anchors, and mass KOL launches, etc., yet it is difficult for foreign makeup brands to adapt to the ever-changing new consumption model in the region.

Refer to E.L.F. Beauty's overseas success experience:

(1) In the context of changing consumer attitudes, cost-effective consumption is gradually becoming a trend, and domestic cosmetics that are affordable and of excellent quality are expected to be sought after by consumers. (2) At the stage where new channels or new business models are emerging, as new channels seize traffic growth (or divert traffic from existing channels), if brands take the lead in layout, they are expected to overtake corners. Emerging domestic brands are expected to overtake cars in curves if they seize opportunities under new channels and changes in new models. (3) Currently, the competitiveness of domestic cosmetics exports continues to increase, and the viability of leading cosmetics overseas is expected to be further strengthened, and overseas sales are expected to contribute to additional volume.

Risk Factors:

The pace of passenger flow and consumption recovery falls short of expectations, R&D falls short of expectations, new product performance falls short of expectations, GMV may deviate from the actual situation due to statistical caliber, etc.