Proya Cosmetics (603605) Report Interpretation

Overview

This note addresses investor questions about whether Proya's core brand can recover after a period of product and channel pressure. Goldman Sachs argues that refreshed hero products, a more self-controlled online channel mix and improved marketing efficiency support a 2H26 recovery while underpinning its Buy rating.

Core views

Goldman Sachs projects the core Proya brand to grow 4% year-on-year in 2H26, equivalent to 4% half-on-half growth, before becoming broadly flat year-on-year in 2027. The institution sees an easier comparison base in 2H26 after management transition, deliberate KOL-channel shrinkage and intense competition since 2H25. It also notes that tracked online GMV has historically correlated strongly with reported skincare revenue, and its Douyin tracker shows core-brand GMV re-accelerating from 1Q26 despite a slight July drag during the non-peak season. The primary product catalyst is the Red Gem Cream 4.0 upgrade, launched on 25 August. The preceding Red Gem Cream had been a major drag: in 1H26, its GMV and average selling price fell 44% and 45% year-on-year, respectively. Goldman Sachs considers core-product upgrades the most effective means of reinvigorating sales and stabilizing pricing when ingredient cycles are unclear. The new 50ml version is priced at Rmb340 versus Rmb329 for version 3.0 and incorporates upgraded ingredients, functionality, delivery technology, texture options and packaging. Early Douyin evidence is encouraging: average daily GMV rose 21% versus the period before launch in August. Emerging SKUs, led by Red Gem Serum, Emulsion and Double Anti-Lotion Cream, also showed solid 1H26 GMV trends. The report will particularly monitor the Red Gem ramp on Tmall into 4Q26, alongside an Original Repair series upgrade in September 2026 and a Double-Anti series upgrade scheduled for late 2026 or early 2027. Channel restructuring is the second pillar. After years of structural reform, Goldman Sachs believes Proya has shifted toward a healthier, more self-controlled mix of e-shelf and in-house livestreaming, which together exceed 70% of the total mix versus 68% in 2025. Reducing reliance on high-cost KOLs is presented as evidence of stronger execution and agility than domestic and multinational peers. The report links this mix change to improved growth quality: Proya cut paid livestream traffic in 1H26 while still delivering strong online GMV growth excluding KOL activity. On profitability, Goldman Sachs remains conservative on broader industry margins but sees relative resilience at Proya. Its GPM-selling ratio fell 1.8 percentage points year-on-year in 2Q26, better than the industry-average 3.0-point decline. The institution also contrasts Proya with Giant Biogene's 6-point year-on-year net-profit-margin contraction and Chicmax's 75% year-on-year net-profit decline. It expects the company to benefit from improving profitability in scaling brands: Off & Relax's repurchase rate increased from 15%/20% on Douyin/Tmall in 2025 to 20%/25% in 1H26, with return on investment becoming more stable after initial brand investment. At the group level, Goldman Sachs expects 2H26 sales growth to accelerate to 28% year-on-year after consolidating newly acquired Flower Knows, compared with flat sales in 1H. It forecasts 7% organic sales growth in 2H26 versus flat organic growth in 1H26. Non-core brands represented about 30% of 1H26 sales and grew 26% year-on-year, supporting the institution's 2027 earnings visibility. Overseas expansion remains unmodeled option value; Proya's cooperation with overseas retailers, including Ulta Beauty in the United States, is viewed as groundwork for longer-term multi-brand global potential. Goldman Sachs values Proya at a 12-month Rmb70 target price, based on 19x 2027E P/E discounted back to mid-2027 using an 8.9% cost of equity. The report describes the exit multiple as using a 10% premium to its industry base multiple of 20x, while applying a 15% discount for potential A-H dual-listing. The target compares with a Rmb61.60 price as of 7 September 2026 and implies 13.6% upside.

Analysis framework

Goldman Sachs combines its online GMV tracking of Douyin and Tmall products and channels with reported company financials and peer margin comparisons. It assesses whether product upgrades can restore sales and pricing, whether channel shifts improve marketing efficiency, and whether these factors support growth, profitability and a 2027E P/E-based target price.

Methodology notes

• Valuation methodsP/E and PEG Valuation

  Forward P/E target-price valuation

  The target price uses a 19x 2027E P/E multiple, discounted back to mid-2027 at an 8.9% cost of equity.

• Industry AnalysisVolume-price decomposition

  GMV and average selling price tracking

  The report uses changes in online GMV and ASP to assess product demand, pricing stabilization and the effect of SKU upgrades.

• Competition & strategyValue chain analysis

  Channel-mix and marketing-efficiency analysis

  The report evaluates the shift from KOL-led sales toward e-shelf and in-house livestreaming to judge control over distribution costs and growth quality.

Asset mapping & comparison

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

• Proya Cosmetics (603605.SH)

  Primary covered company; expected to benefit from core-brand product upgrades, a more self-controlled online channel mix and multi-brand growth.

  Strengths

  Early Red Gem 4.0 sales signals, more than 70% e-shelf and in-house livestreaming mix, and comparatively resilient GPM-selling performance.

  Weaknesses

  The core brand faced prior declines in Red Gem Cream GMV and ASP, while industry competition remains intense.

  Comparison

  Its 2Q26 GPM-selling ratio decline of 1.8ppt was better than the industry average decline of 3.0ppt.

  Risks

  Slower core-product development, stronger competition, slower new-brand ramp-up, weaker overseas performance and management-transition uncertainty.

Key data

• Core Proya brand growth forecast4% YoY in 2H26Equivalent to 4% half-on-half growth; expected to stabilize at flat YoY in 2027.
• Red Gem Cream prior declineGMV -44% YoY; ASP -45% YoY1H26 decline for the prior product version.
• Red Gem Cream 4.0 daily GMV+21%Douyin average daily GMV versus before launch in August.
• Self-controlled channel mix70%+E-shelf and in-house livestreaming share, versus 68% in 2025.
• GPM-selling ratio change-1.8ppt YoYProya in 2Q26 versus industry-average decline of 3.0ppt.
• 2H26 sales growth forecast+28% YoYIncluding newly acquired Flower Knows; organic growth forecast at 7% YoY.
• 2027E valuation19x P/EBasis of the Rmb70 12-month target price, discounted using an 8.9% cost of equity.

Impact & implications

The report argues that product refreshes and channel reform could convert recovering online demand into higher-quality growth while moderating marketing pressure. Portfolio growth and emerging-brand profitability are expected to improve 2027 visibility, while overseas expansion remains upside not incorporated into Goldman Sachs' valuation.

Risks

• Slower-than-expected product development for the core Proya brand.
• More intense-than-expected competition.
• Slower-than-expected sales ramp-up for new brands.
• Weaker-than-expected overseas performance.
• Operational uncertainty arising from management shifts.

What to watch

• The ramp-up of Red Gem Cream 4.0, particularly on Tmall into 4Q26.
• The September 2026 Original Repair series upgrade and the Double-Anti upgrade planned for late 2026 or early 2027.
• Whether Proya can sustain online GMV growth while reducing paid traffic and KOL reliance.
• Progress in emerging-brand profitability and overseas retailer cooperation.