Proya Cosmetics plans to raise its stake in Huazhixiao to a controlling position, Goldman Sachs maintains a Neutral rating

Overview

This report comments on Proya Cosmetics' announcement of its stake acquisition in Huazhixiao. Proya Cosmetics plans to acquire a 12.5479% stake in Huazhixiao from founder Yang Zifeng for Rmb351mn in cash. After completion, its holding will rise from 38.4521% to 51%, and Huazhixiao will be consolidated. Goldman Sachs maintains a Neutral rating on Proya Cosmetics and a 12-month target price of Rmb69.

Core views

Goldman Sachs believes the deal is consistent with Proya Cosmetics' strategic direction of advancing a multi-brand and color cosmetics portfolio. Huazhixiao is a fast-growing and profitable color cosmetics brand, with overseas sales exceeding Rmb200mn in 2025 across the US, Japan, Southeast Asia and other markets, giving it differentiated asset characteristics. If consolidated, the share of non-core-Proya-brand revenue in group revenue could rise to around 35% or more, while Huazhixiao's higher net margin could be accretive to group margins.

Analysis framework

The report assesses the acquisition mainly from the perspectives of transaction valuation, consolidation impact, brand portfolio synergies, overseas expansion, growth momentum and margin comparison, while maintaining the target price and rating within Goldman Sachs' existing valuation framework.

Methodology notes

• Valuation methodsP/E target multiple discount model

  12-month target price

  Goldman Sachs' 12-month target price of Rmb69 for Proya Cosmetics is based on 19x 2027E P/E, discounted back to the end of 2026 using an 8.9% cost of equity; the 19x target exit multiple is at a 30% discount to the industry base multiple of 27x, reflecting slower growth, operating uncertainty after management changes, and potential dilution from an H-share listing.

• Risk and factorsGS Factor Profile

  Growth, financial returns, valuation multiples and composite factors

  Goldman Sachs' factor framework compares a stock's growth, financial returns, valuation multiples and composite indicators against the broader market and sector peers to provide an investment backdrop; growth is typically based on forward sales, EBITDA and EPS growth, financial returns on ROE, ROCE and CROCI, and valuation multiples on metrics such as P/E, P/B and EV/EBITDA.

• M&AM&A Rank

  Potential acquisition probability score

  Goldman Sachs uses its M&A framework across global coverage to assess the probability that a company could become an acquisition target; scores from 1 to 3 indicate high, medium and low probability, respectively. This report mainly concerns Proya Cosmetics' acquisition of Huazhixiao, rather than Proya Cosmetics itself as a target.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Proya Cosmetics 603605.SS

  Research target and acquirer

  Strengths

  The multi-brand strategy is clearly advancing, and the company can obtain control of Huazhixiao after the deal; Huazhixiao is growing quickly, has a higher margin and already has an overseas sales base.

  Weaknesses

  Goldman Sachs noted slower growth at the core brand, operating uncertainty following recent management changes, and potential dilution from an H-share listing as valuation discount factors.

  Comparison

  Huazhixiao's 2025/1Q26 net margins of 16.2%/23% are above Proya Cosmetics' 2025E/2026E GSe net margins of 13.9%/13.7%; after consolidation, non-core-brand revenue may account for around 35% or more of group revenue.

  Risks

  Uncertainty around deal completion, integration execution, brand autonomy preservation, supply-chain and operating synergies, and shifts in competition in color cosmetics and skincare.

• Huazhixiao

  The color cosmetics brand that Proya Cosmetics plans to control and consolidate

  Strengths

  It posted 2025 sales of Rmb1.7bn, 1Q26 sales of Rmb675mn, a relatively high net margin, and more than Rmb200mn in sales across overseas markets such as the US, Japan and Southeast Asia.

  Weaknesses

  The sustainability of future growth and the brand's independence and operating synergies after consolidation still need to be monitored.

  Comparison

  The transaction valuation implies 1.6x 2025 P/S and 10x 2025 P/E; relative to Proya Cosmetics' group margin, Huazhixiao has potential to be margin accretive.

  Risks

  New product cadence, channel investment, overseas expansion execution and intensifying competition could affect growth and margins.

Key data

• Acquired equity stake12.5479%Proya Cosmetics plans to acquire Huazhixiao equity from founder Yang Zifeng.
• Cash considerationRmb351mnThis implies an overall equity value of about Rmb2.8bn for Huazhixiao.
• Post-deal ownership51%Proya Cosmetics' stake will rise from 38.4521% to a controlling position, with consolidation planned.
• Huazhixiao 2025 salesRmb1.7bnThe transaction price implies about 1.6x 2025 P/S.
• Huazhixiao 2025 net margin16.2%The transaction price implies about 10x 2025 P/E.
• Huazhixiao 1Q26 salesRmb675mnThis is about 40% of full-year 2025 sales, indicating strong growth momentum.
• Huazhixiao 1Q26 net margin23%This is higher than Proya Cosmetics' 2025E/2026E GSe net margins of 13.9%/13.7%.
• Revenue impact from consolidationAbout 16% of Proya Cosmetics' 2025 salesBased on Huazhixiao's 2025 data and a 51% post-deal stake.
• Attributable net profit impactAbout Rmb143mnThis is about 10% of Proya Cosmetics' 2025 net profit.
• Target priceRmb69Goldman Sachs' 12-month target price.

Impact & implications

If the deal is completed, Proya Cosmetics will move from a minority investment to controlling Huazhixiao, helping strengthen its color cosmetics and multi-brand matrix and expand overseas touchpoints. Financially, Huazhixiao's revenue scale and higher net margin may improve group revenue diversification and margin performance; however, Goldman Sachs has not yet included the deal in earnings forecasts pending completion and clearer integration details.

Risks

• New product development at the core Proya brand may fall short of expectations.
• Competition may be stronger or weaker than expected.
• New brand sales ramp-up may be faster or slower than expected.
• Operating margins may be better or worse than expected if selling expenses are lower or higher than expected.
• There is uncertainty around Huazhixiao's deal completion, consolidation timing and integration details.

What to watch

• Progress on acquisition approvals and closing, and whether Proya Cosmetics formally consolidates Huazhixiao.
• Huazhixiao's quarterly sales growth, net margin and overseas sales performance going forward.
• Whether Proya Cosmetics can deliver on supply-chain, channel and operating synergies with Huazhixiao while preserving brand autonomy.
• Changes in the share of non-core-brand revenue and the contribution of the multi-brand matrix to group growth.
• Whether Goldman Sachs adjusts earnings forecasts, target price or rating after the deal is completed.