Mao Geping Cosmetics Co. (01318) Report Interpretation

Overview

This earnings review follows Mao Geping's 1H26 results briefing. Goldman Sachs remains positive on the company’s medium-term growth and margin resilience, while recognizing slower skincare growth and higher brand-investment costs that lead to lower earnings forecasts and a reduced target price.

Core views

Management said 1H26 revenue exceeded budget and that its 2H26 revenue budget is higher than 1H26, underpinning confidence in continued momentum. It remains confident of approximately 15% annual revenue growth over the next three years. Goldman Sachs believes a 15%+ three-year sales CAGR remains achievable, implying RMB9.7bn of sales by 2029E, and continues to expect 26% year-on-year sales growth in 2026E as the drag from a high base among offline distributors and retailers eases. Earnings quality was described as intact: adjusted 1H26 net profit margin was broadly in line with the 25% level in 1H24, while the unusually high 2025 margin reflected non-recurring platform incentives and should not be treated as the normalized benchmark. Color cosmetics is the company’s near-term growth engine because management sees stronger content conversion and customer-acquisition efficiency than in skincare. More than 10 core SKUs exceeded RMB100mn retail sales in 2025, with the count increasing further in 1H26. Base makeup remains central, led by the Caviar Cushion, which ranked first among premium cushions, alongside strong performance from the cushion range and Little Gold Fan pressed powder. New products broaden the complexion and primer portfolio: Powderwear exceeded RMB100mn retail sales within six months of launch, while Skinwear, Sunscreenwear, liquid highlighter and nose-contouring powder address product compatibility and refined use cases. The report links this momentum to professional makeup expertise, broad channel and category coverage, and rising consumer interest in national aesthetics and Chinese cultural confidence. The Huahua collection is positioned as a customer-acquisition and reach vehicle rather than a limited-edition product. The non-limited IP range, co-developed with the Chengdu Research Base of Giant Panda Breeding, spans base, eye and lip makeup and aims at younger consumers through a more approachable expression of Oriental aesthetics. It has sold 300,000 units across channels; Red Note data showed that 80% of Huahua cushion purchasers were new customers. Management plans to emphasize easier-to-use products and application methods for less experienced users, differentiating the collection from the core brand’s more professional light-and-shadow positioning. Skincare growth has slowed, but management characterizes this as a deliberate and temporary allocation choice, with resources directed toward higher-efficiency color cosmetics while skincare is built through a product-tier roadmap. The Caviar Mask has surpassed RMB1bn in annual retail sales and ranks first in premium wash-off masks at roughly three times the scale of the second-ranked product. A second tier of products has reached the RMB200-300mn annual-sales threshold and is entering a scaling phase, while the number of third-tier SKUs exceeding RMB100mn annual sales has risen materially from last year. Management emphasizes that skincare hero products need years of offline sales, word-of-mouth and efficacy validation rather than short-term marketing. The Shaoyao series is planned for 2H26, supported by substantial active-ingredient investment, and is viewed as a potential next hero product. Fragrance is also being added to the hero-product portfolio as a potential new growth driver. Margins are a central support for Goldman Sachs’ view. Management attributed 1H26 gross-margin expansion to premium positioning, consumer recognition and accumulated brand equity, arguing that the company has improved margins without broad price cuts even as the wider industry relies on promotions and discounts. Goldman Sachs considers its margin resilience among the strongest in the industry. It models continuing 2H26 margin pressure and RMB30mn of social-insurance costs, but expects stable gross margin and operating leverage to support 22% year-on-year net-profit growth in 2H26. Online net profit margin reached 26.3% in 1H26 despite higher traffic, KOL and influencer costs. Management intends to raise brand-building spending moderately and will not reduce necessary investment simply to protect short-term margins. Channel strategy is designed to balance growth and profitability. Online repurchase reached 24.8%, while registered members rose 38.7% year on year to 18.64mn. Tmall is focused on repurchase and brand education, whereas Douyin drives content reach, new-customer acquisition and penetration. During 618, the company ranked first on Douyin, second on Tmall and third on JD.com in fragrance and color cosmetics. Offline, management maintains 12% FY26 same-store-sales-growth guidance, plans more than 30 net new stores annually, and is upgrading counters and expanding into premium, higher-productivity locations. More than 100 stores now generate over RMB10mn in annual sales. The company is also strengthening service through beauty-advisor training, makeup-artist incentives, CRM tools and official customer-communication systems. Overseas revenue grew 45.4% year on year in 1H26. The first directly operated Hong Kong counter, opened in October 2025, increased monthly sales from approximately RMB0.3mn at opening to RMB0.8-0.9mn recently. Planned Hong Kong expansion includes Harbour City and a second standalone Times Square store; Hong Kong, Macau and Singapore form the initial regional management scope. Management favors a localized, self-operated approach, with deeper adaptation of products, formulations and shades required for Singapore, Europe and the United States. Goldman Sachs notes that L Catterton and LVMH-related resources could support international expansion, talent development and longer-term multi-brand ambitions. The completed Hangzhou R&D center and facilities expected to be fully completed in 2H26 are intended to enhance in-house R&D, supply-chain flexibility and independent product development. Following 1H26 results, Goldman Sachs lowers 2026-28E net-income estimates by 5-7%. The revisions reflect a slower skincare top-line outlook and higher selling expense from brand investment, product promotion and tougher cosmetics competition, partly offset by higher gross margin. Revised revenue forecasts are RMB6,375.4mn for 2026E, RMB7,697.2mn for 2027E and RMB8,811.2mn for 2028E, versus prior estimates of RMB6,552.5mn, RMB7,977.0mn and RMB9,179.1mn. Revised EPS is RMB2.98, RMB3.50 and RMB3.94, versus RMB3.15, RMB3.73 and RMB4.24 previously. The target price is cut to HK$73 from HK$78 but Buy is maintained. The target uses a 21x 2027E P/E multiple discounted to end-2026E at an 8.9% cost of equity; the 21x exit multiple is derived from a 30% premium to a 20x industry base multiple after a 20% A-H discount. Goldman Sachs notes the stock trades at 14x updated 2026E P/E, compared with MSCI China at 13x, alongside a projected 15% 2026-28E net-profit CAGR; the target implies 22x 2026E P/E against a 19% 2025-27E net-income CAGR.

Analysis framework

Goldman Sachs combines management commentary from the 1H26 results briefing with product, channel, margin and overseas-expansion indicators. It then revises revenue, expense and earnings forecasts, assesses margin resilience against cosmetics peers, and values the shares using a forward P/E exit multiple discounted using its cost-of-equity assumption.

Methodology notes

• Industry AnalysisVolume-price decomposition

  Product and channel growth assessment

  The report evaluates growth through SKU sales thresholds, customer acquisition, repurchase, store expansion, same-store sales growth and channel roles, rather than treating total sales as a single driver.

• Corporate Fundamentals and FinanceOperating and Financial Leverage Analysis

  Margin and operating-leverage analysis

  The report assesses how stable gross margin and operating leverage could offset higher selling costs and support 2H26 profit growth.

• Valuation methodsP/E and PEG Valuation

  Forward P/E multiple valuation discounted using cost of equity

  The HK$73 target is based on a 21x 2027E P/E exit multiple, discounted back to end-2026E using an 8.9% cost of equity and compared with industry and growth metrics.

Asset mapping & comparison

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

• Mao Geping Cosmetics Co. (1318.HK)

  Primary covered company; Goldman Sachs maintains a Buy rating following 1H26 results.

  Strengths

  Color-cosmetics execution, customer acquisition through Huahua, resilient gross margin, profitable online operations, premium offline expansion and accelerating overseas revenue.

  Weaknesses

  Skincare growth is slower in the near term and the company faces higher selling and marketing expense.

  Comparison

  Goldman Sachs describes the company’s margin resilience as among the strongest in the cosmetics industry; the stock trades at 14x updated 2026E P/E versus MSCI China at 13x.

  Risks

  Slower skincare expansion, slower penetration of mid-to-high price beauty products in China, greater marketing costs and tougher competition from overseas premium brands.

Key data

• RatingBuyMaintained after the 1H26 results review.
• 12-month target priceHK$73.00Reduced from HK$78.00.
• Current priceHK$49.90Price as reported on 28 August 2026.
• Implied upside46.3%Versus the reported current price.
• Three-year revenue growth targetc.15% annuallyManagement confidence for the next three years; Goldman Sachs sees 15%+ sales CAGR as achievable.
• 2029E sales implicationRMB9.7bnImplied by the report's 15%+ three-year sales-CAGR view.
• 2026E revenueRMB6,375.4mnRevised down from RMB6,552.5mn; 26.2% growth forecast.
• 2026-28E net-income revision-5% to -7%Reflects slower skincare growth and higher selling expense, partly offset by higher gross margin.
• Online net profit margin26.3%1H26, despite higher traffic and influencer costs.
• Online repurchase rate24.8%1H26 operational-quality indicator.
• Registered members18.64mnUp 38.7% year on year in 1H26.
• Overseas revenue growth45.4% YoY1H26.

Impact & implications

The report argues that the company’s growth case is supported by color-cosmetics innovation, online customer acquisition, offline productivity upgrades and an early overseas rollout, while skincare remains a longer-cycle opportunity. Higher brand investment and slower skincare growth reduce near-term earnings estimates, but Goldman Sachs believes pricing power, gross-margin resilience and operating leverage preserve the fundamental case.

Risks

• Skincare category expansion may be slower than expected.
• Penetration of mid-to-high price beauty products in China may be slower than expected.
• Selling and marketing costs for new star SKUs and categories may be higher than expected.
• Competition from overseas premium brands may be tougher than expected.

What to watch

• Whether the higher 2H26 revenue budget and approximately 15% annual three-year growth target are delivered.
• The performance of color-cosmetics innovation and Huahua-led new-customer acquisition.
• Skincare’s product-tier progression and the 2H26 launch of the Shaoyao series.
• Online profitability amid higher traffic and influencer costs, alongside repurchase and membership trends.
• Delivery of 12% FY26 offline same-store-sales-growth guidance, store additions and premium-location upgrades.
• Hong Kong expansion, broader overseas localization and the ramp of self-operated international operations.