China beauty Report Interpretation

Overview

This China beauty outlook argues that resilient demand is not translating into broad-based company performance. J.P. Morgan favors quality-growth companies with durable brand and retail advantages, plus recovery candidates where operating efficiency and margins can improve, while cautioning that elevated traffic, KOL and brand-investment costs limit the earnings recovery for weaker operators.

Core views

China beauty demand remained resilient through Jan-Jul, when retail cosmetic sales increased about 6% year on year, around 5 percentage points faster than overall retail sales. However, J.P. Morgan emphasizes that this resilience has become highly uneven at the company level: Mao Geping grew sales 26% in 1H26, while most peers ranged from roughly -9% to +9%. The report therefore expects stock-specific execution to matter more than broad sector beta in 2H26 and 2027. Intensifying promotion, KOL collaboration and online investment by international brands are raising platform-traffic and KOL costs, while lower-efficiency livestreaming generates weaker returns. This makes brand equity, organic traffic, retail execution and unit economics central to both share gains and earnings quality. The institution does not expect a broad demand acceleration in 2H26. Instead, it identifies two routes to growth: quality names can continue taking share despite soft consumption, while recovery names may improve through product, channel and organizational adjustments from weak bases. Selected companies may recover profitability from depressed 1H26 levels, but normalized margins remain constrained by selling and brand-building investment. Into 2027, the key earnings swing factor is selling-expense leverage: less reliance on inefficient paid traffic, scaling newer brands and fixed-cost dilution could normalize margins, whereas companies that must sustain high spending simply to protect growth may see limited earnings upside. Mao Geping is J.P. Morgan's top quality-growth preference. The report expects 2H sales and core-earnings growth of 29% and 23%, respectively, versus consensus expectations of 29% and 29%, followed by 2027 growth of 23% and 25%, versus consensus at 23% and 23%. Premium positioning, a differentiated retail experience, an expandable store network and products tailored to Chinese facial features and aesthetics are expected to support further market- and mind-share gains. The firm maintains Overweight, with an HK$81 target price; the target reflects a 9% reduction to 2028E EPS and a reduction in the target P/E multiple from 31x to 15x. Botanee is the preferred recovery story because J.P. Morgan sees an efficiency-led margin recovery even without a strong consumption rebound. It forecasts 2H sales and earnings growth of 10% and 38%, and 2027 growth of 9% and 18%. In 1H/2Q26, Botanee's selling-expense ratio fell 3.6/4.3 percentage points year on year, supported by better marketing returns, lower KOL-livestreaming dependence and organizational streamlining. Rebuilt pricing, reduced low-return traffic-driven sales and a shift toward higher-margin products have also improved gross-margin potential. The report maintains Overweight and sets a RMB45 target price, after cutting its 2028E EPS estimate by 6% and target multiple from 31x to 22x. For Proya, the report sees gradual rather than sharp normalization. It expects 2H sales/core-earnings growth of 12%/-12% and 2027 growth of 10%/15%, below consensus on both revenue and earnings. The core Proya brand improved sequentially in 2Q26, while newer brands Insbaha, Off & Relax and Awaken Seeds are scaling and offsetting weakness in mature brands. However, Timage sales fell 22% amid competition, and higher traffic-acquisition costs, greater exposure to lower-profit emerging brands and higher Douyin investment restrain near-term earnings visibility. J.P. Morgan maintains Overweight with a RMB78 target price, based on a 17% 2028E EPS cut and a target multiple reduced from 28x to 18x. The report becomes more cautious further down the ranking. For Chicmax, it forecasts 2H sales/earnings growth of -2%/-29%, far below consensus expectations of +18%/+34%, because international-brand discounting and investment may structurally raise acquisition costs and weaken KANS' value-for-money advantage. Continued personnel, R&D and brand spending should keep net margin below the approximately 11% level in 2H25; J.P. Morgan downgrades the stock to Neutral, with a HK$21 target price after a 58% 2028E EPS cut and target multiple reduction from 24x to 9x. Jahwa shows improving topline signals, including 2Q26 core-earnings growth of 196% year on year and high-double-digit 3Q-to-date GMV growth at Yuze and Herborist, but the report considers the observation period too short to prove a sustained turnaround. Seasonal normalization at Liushen, tougher 11.11 competition, continued brand investment and elevated traffic costs may limit earnings recovery. It remains Underweight, as the report views its 27x 2028E P/E as a premium to the A-share sector average of about 18x that already prices in a successful turnaround. Marubi's recovery is also viewed as less visible than market expectations imply. PL sales fell 40% year on year in 2Q and the core Marubi brand declined 4%, reflecting category competition and internal team adjustments. Easier comparisons, channel changes and PL normalization may support improvement, but traffic costs and increasingly intense self-livestreaming competition constrain confidence in the timing and magnitude of recovery. J.P. Morgan downgrades Marubi to Underweight; its RMB20 target price follows a 33% 2028E EPS cut, while 41x/35x 2027E/2028E P/E is seen as leaving insufficient room for execution disappointment. Shareholder returns offer modest additional support for Mao Geping, Botanee and Proya. Mao Geping's repurchase plan is capped at HK$500 million or 3% of outstanding shares; Botanee had executed about RMB120 million, or 0.9% of shares, by 31 August; and Proya had executed about RMB129 million, or 0.5% of shares. Assuming full plan execution, J.P. Morgan estimates 2026E total shareholder returns of 4.8% for Mao Geping, 3.4% for Botanee and 3.8% for Proya. The report also expects the A-share beauty valuation premium to persist because domestic investors price earnings normalization earlier, whereas H-share investors generally require clearer evidence that recovery can become sustainable earnings.

Analysis framework

J.P. Morgan compares sector demand with company-level sales dispersion, then assesses brand positioning, channel and product changes, customer-acquisition efficiency, selling-expense ratios, gross margins and earnings forecasts. It benchmarks its 2H26 and 2027 estimates against consensus and uses forward P/E multiples and target-price revisions to judge valuation relative to recovery visibility.

Methodology notes

• Industry AnalysisSupply-demand framework

  Demand conditions and company-specific competitive differentiation

  The report contrasts resilient cosmetic retail demand with widening company performance dispersion, explaining how competitive intensity and customer-acquisition costs determine which brands convert demand into profitable growth.

• Industry AnalysisVolume-price decomposition

  Revenue growth and margin/expense drivers

  The analysis separates top-line growth from gross margin, selling expenses and operating leverage to identify whether earnings recovery is supported by efficient growth rather than spending-led sales.

• Valuation methodsP/E and PEG Valuation

  Forward P/E-based target-price assessment

  J.P. Morgan uses forecast P/E multiples, earnings-estimate revisions and sector-average multiples to set or reassess target prices and evaluate whether valuations already assume a smooth recovery.

Asset mapping & comparison

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

• Mao Geping (01318.HK)

  Top quality-growth preference and top pick

  Strengths

  Premium positioning, differentiated retail experience, store-network roadmap, tailored product offering and expected continued share gains.

  Weaknesses

  Near-term core-earnings growth forecast of 23% is below 29% consensus.

  Comparison

  Expected to remain a growth outlier versus peers.

• Botanee (300957.CH)

  Efficiency-led recovery preference

  Strengths

  Improving marketing ROI, lower KOL dependence, organizational streamlining, better product mix and margin-recovery potential.

  Weaknesses

  Revenue forecasts remain below consensus.

  Comparison

  Recovery is supported more by efficiency and operating leverage than a broad demand rebound.

• Proya (603605.CH)

  Recovery and improving-visibility preference

  Strengths

  Sequential core-brand improvement and rapid scaling of newer brands.

  Weaknesses

  Timage sales fell 22%; emerging-brand mix and Douyin investment pressure near-term profitability.

  Comparison

  Earnings normalization is expected to be gradual and below consensus expectations.

  Risks

  Uneven portfolio recovery and elevated traffic-acquisition costs.

• Chicmax (02145.HK)

  Neutral-rated covered company

  Strengths

  The report believes much of the earnings reset is priced in after the sharp correction.

  Weaknesses

  Narrowing KANS competitive edge, structurally higher customer-acquisition costs and elevated investment keep profitability under pressure.

  Comparison

  J.P. Morgan's 2H26 sales and earnings forecasts are materially below consensus.

  Risks

  International-brand discounting and investment could further weaken normalized unit economics.

• Shanghai Jahwa (600315.CH)

  Underweight-rated recovery candidate

  Strengths

  Recent topline momentum improved, with high-double-digit GMV growth at Yuze and Herborist in 3Q-to-date.

  Weaknesses

  Sustainable growth and margin recovery remain unproven; valuation is viewed as demanding.

  Comparison

  At 27x 2028E P/E, it trades above the approximately 18x A-share sector average.

  Risks

  Seasonal normalization, stronger 11.11 competition, brand spending and elevated traffic costs.

• Marubi (603983.CH)

  Underweight-rated recovery candidate

  Strengths

  Easier comparisons, channel adjustments and potential PL normalization could support improvement.

  Weaknesses

  PL sales fell 40% year on year in 2Q and the core brand declined 4%; recovery timing is uncertain.

  Comparison

  Its 41x/35x 2027E/2028E P/E is viewed as pricing a smoother recovery than revised forecasts support.

  Risks

  Competitive pressure, high traffic costs and intense self-livestreaming competition.

Key data

• China cosmetic retail salesc6% yoy in Jan-JulAbout 5 percentage points ahead of overall retail sales.
• Mao Geping 1H26 sales growth26%Versus roughly -9% to +9% across most peers.
• Botanee selling-expense ratio change-3.6ppt in 1H26; -4.3ppt in 2Q26Year-on-year reduction supported by better marketing ROI and lower KOL-livestreaming reliance.
• Mao Geping 2H26E sales/core earnings growth29% / 23%Consensus: 29% / 29%.
• Botanee 2H26E sales/earnings growth10% / 38%Consensus: 13% / 31%.
• Proya 2H26E sales/core earnings growth12% / -12%Consensus: 23% / -6%.
• Chicmax 2H26E sales/earnings growth-2% / -29%Consensus: 18% / 34%.
• Marubi 2H26E sales/core earnings growth7% / 111%Consensus: 23% / 149%.

Impact & implications

The report's central implication is that sector demand alone is insufficient to support earnings or valuation: companies with strong brands and lower-cost traffic can gain share and improve margins, while recovery candidates require demonstrated top-line durability and selling-expense leverage. J.P. Morgan considers the differing evidence on these factors the basis for its wide stock-ranking dispersion.

Risks

• Higher platform-traffic and KOL costs, together with weak returns from lower-efficiency livestreaming, could constrain margins across the sector.
• International brands' promotion, discounting and online investment may intensify competition and pressure domestic brands' customer-acquisition economics.
• Recovery stories may fail to sustain topline or margin improvement despite initial operational progress.
• Companies that continue high spending to defend growth may see limited earnings upside even if revenue improves.