China cosmetics sector Report Interpretation

Overview

This 1H26/2Q26 China cosmetics review examines weakening online profitability, comparatively resilient offline demand, changing platform and product strategies, and the implications for local brands versus multinational competitors in 2H26.

Core views

Goldman Sachs finds that 2Q26 results reinforced its prior view: online profitability is deteriorating as competition and promotional spending intensify, while offline channels remain relatively resilient. Across covered China cosmetics names, the average gross-profit-margin less selling-expense-ratio change was -3.0ppt year-on-year in 2Q26, alongside a 3.1ppt rise in selling-expense ratios. Revenue also decelerated sequentially versus 1Q26 and 2H25 amid weaker beauty consumption and heightened competition. However, Mao Geping, Forest Cabin, Botanee and Shanghai Jahwa managed this combined margin measure within a range of -1.7ppt to +5ppt in 1H/2Q26, outperforming the industry average. Mao Geping and Forest Cabin delivered double-digit offline same-store-sales growth and more than 20% year-on-year offline revenue growth, compared with low- to mid-single-digit offline growth for key global players. The report identifies four 2H26 themes. First, online seasonality has become less pronounced since 2025, reflecting softer consumer sentiment around Double 11, while local brands generally face easier 2H26 comparison bases. Second, channel strategies are diverging: multinational brands have refueled Tmall and Douyin e-shelf activity since 2H25 with platform support and subsidies, while local brands increasingly rely on in-house livestreaming and seek better efficiency. In 1H26, both groups shifted Douyin GMV mix toward e-shelf and away from KOL livestreaming. Third, multinationals have shown greater SKU concentration around shopping festivals, whereas local brands are attempting to build steadier daily sales and reduce direct promotional competition. Fourth, Goldman Sachs sees upcoming upgrades to established hero SKUs as a more durable local-brand catalyst than entirely new concepts, which it considers volatile without a clear ingredient or product cycle. Cited launches include Proya Red Gem Cream 4.0 and Forest Cabin essential oil 6.0 in August 2026, and Giant Biogene Collagen 3.0 in 2027. At the sector level, China beauty’s price index declined 20% year-to-date in 2026, compared with a 10% decline for MSCI China. Bloomberg consensus attributes this to a 16% valuation de-rating and a 4% downward earnings revision. The sector trades at 18x 12-month forward P/E, more than one standard deviation below its historical average and at a 29% discount to global cosmetics peers at about 26x. Goldman Sachs sees potential valuation upside from current levels but wants evidence of easing competition and improving return on investment, as well as a broader recovery in consumption sentiment. Company results and views remain differentiated. Goldman Sachs upgraded Proya from Neutral to Buy, expecting core-brand recovery from upgrades in 2H26 and potential 2027 upside from its multi-brand portfolio, non-core brands and the Flower Knows acquisition. It favors Mao Geping for resilient branding and expects 26% sales growth and 22% net-profit growth in 2H26; Giant Biogene for sequential recovery supported by new launches and medical-aesthetics business; and Forest Cabin for multi-product momentum, diversified channels and disciplined brand-investment costs. It remains Neutral on Shanghai Jahwa and Botanee and Sell on Bloomage. For Botanee, 2Q26 revenue grew 4% year-on-year but missed Goldman Sachs estimates by 6%, as online sales fell 9% despite 48% offline growth. Operating profit beat estimates by 10% on cost control and a 2.2ppt operating-margin beat, but net profit missed by 17% because of lower other income and higher finance costs. Goldman Sachs cut 2026-28 net-income estimates by 3-4%, now forecasts 2026 sales and net-profit growth of 10% and 27%, and maintains Neutral with a RMB32.5 12-month target price based on 20x 2027E P/E discounted to mid-2027 using an 8.9% cost of equity. Bloomage reported a 58% 2Q26 operating-profit miss on weaker revenue and higher R&D and selling costs, though net profit beat Goldman Sachs estimates by 4% because of associate and joint-venture investment income and a tax credit. Management is restructuring skincare toward quality-led growth, reducing inefficient marketing and emphasizing core technologies. Medical-aesthetics revenue reached RMB426 million in 1H26; Class III device sales rose about 85% year-on-year to 4.28 million units, and JUVELOOK received NMPA approval in July 2026. Goldman Sachs raised 2026 net-income estimates by 11% on investment income but cut 2027-28 estimates by 2-6% for weaker skincare revenue, maintaining Sell and a RMB25 target price based on 22x 2027E P/E discounted to mid-2026 using a 9.6% cost of equity. Shanghai Chicmax’s non-covered results are used as a sector read-across. Its 1H26 sales and net profit grew 9% and 79% year-on-year, but management described slower Douyin traffic growth, intense competition and elevated investment needs. Goldman Sachs regards this as reinforcing the difficult 2Q26 operating backdrop and continues to favor companies with differentiated products, integrated R&D and multi-channel capabilities, particularly Mao Geping’s offline and margin resilience and Giant Biogene’s product and medical-aesthetics catalysts.

Analysis framework

Goldman Sachs compares reported 1H26 and 2Q26 sales, operating profit, gross-margin and selling-expense trends across covered local brands and global peers. It then analyzes channel mix and growth across Tmall, Douyin and JD.com; livestreaming, e-shelf and promotion-season sales patterns; product-upgrade pipelines; management guidance; earnings-estimate revisions; and relative valuation versus historical and global cosmetics multiples.

Methodology notes

• Industry AnalysisVolume-price decomposition

  Channel and margin analysis using sales growth, gross margin, selling-expense ratios, platform mix and daily-sales multiples.

  The report separates the sector’s operating pressure into revenue growth, channel mix, gross margin and selling costs to show why online competition is reducing profitability despite resilient pockets of demand.

• Valuation methodsP/E and PEG Valuation

  Forward P/E and PEG comparisons, with company target prices based on 2027E P/E multiples discounted using a cost of equity.

  Goldman Sachs compares China cosmetics valuation with history and global peers, and derives company target prices from stated forward earnings multiples, timing assumptions and discount rates.

• Industry AnalysisSupply-demand framework

  Assessment of consumer demand, promotional intensity, competition, channel subsidies and product-launch timing.

  The report links subdued consumption and competitive investment to weaker margins, while treating product upgrades, channel efficiency and offline resilience as potential offsets.

Asset mapping & comparison

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

• Proya Cosmetics (603605.SS)

  Buy-rated local cosmetics leader expected to accelerate in 2H26 as core-brand upgrades support recovery.

  Strengths

  Core-brand recovery potential, Red Gem Cream 4.0 upgrade, multi-brand portfolio and Flower Knows-related 2027 upside.

  Weaknesses

  2Q26 operating profit and recurring net profit missed on higher administrative expenses.

  Comparison

  Goldman Sachs sees Proya as a favored local player amid challenging sector conditions.

  Risks

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

• Mao Geping Cosmetics Co. (1318.HK)

  Buy-rated premium local player favored for resilience and branding strength.

  Strengths

  Double-digit offline same-store sales growth, resilient operating-profit growth, stable margins and broad product pipeline.

  Weaknesses

  Online skincare growth may remain strategically slower than color cosmetics amid intense competition.

  Comparison

  Reportedly outperformed many domestic and multinational peers in offline growth and margin resilience.

  Risks

  Slower premium-beauty penetration, higher marketing costs for new SKUs and categories, and tougher overseas premium-brand competition.

• Giant Biogene Holding (2367.HK)

  Buy-rated company expected to recover sequentially into 2H26.

  Strengths

  New-product pipeline and medical-aesthetics commercialization potential.

  Weaknesses

  1H26 operating profit missed due to higher selling expenses despite in-line net profit and revenue.

  Comparison

  Goldman Sachs identifies it as a preferred local name alongside Mao Geping and Forest Cabin.

  Risks

  Slower professional skin-treatment growth, intensified competition, unsuccessful product development and regulatory risk.

• Shanghai Forest Cabin Cosmetics (2657.HK)

  Buy-rated local player supported by multi-product and multi-channel momentum.

  Strengths

  Double-digit offline same-store sales growth, diversified channel layout and disciplined brand-investment costs.

  Weaknesses

  Potential margin dilution from increasing online exposure and concentration in essence oil.

  Comparison

  Alongside Mao Geping, outperformed in offline growth versus global peers.

  Risks

  Slower anti-aging penetration, lower adoption of oil-essence products, greater promotions and product concentration.

• Botanee Biotech (300957.SZ)

  Neutral-rated company where margin improvement from pricing and cost control is offset by moderated sales.

  Strengths

  2Q26 operating-profit beat, 48% offline growth and improved gross-profit-margin less selling-expense ratio.

  Weaknesses

  Online sales declined 9%, revenue missed estimates and net profit missed from finance costs.

  Comparison

  Outperformed the industry average on combined margin performance but lacks sufficient valuation support for a more positive rating.

  Risks

  Uncertain dermocosmetics penetration, market-share gains, new-brand contribution, non-skincare mix and advertising-and-promotion spending.

• Bloomage Biotechnology Corp. (688363.SS)

  Sell-rated company undergoing skincare restructuring while developing medical aesthetics and raw materials.

  Strengths

  Medical-aesthetics growth, JUVELOOK approval, raw-material diversification and efficiency initiatives.

  Weaknesses

  Weak skincare revenue, 58% 2Q26 operating-profit miss and elevated R&D and selling costs.

  Comparison

  Contrasts with favored local peers because its ongoing skincare adjustment weakens its near-term earnings profile.

  Risks

  Faster skincare recovery, stronger cosmetics demand, less competition or a faster decline in selling-expense ratio could improve results beyond expectations.

Key data

• China beauty price-index performance-20% in 2026 year-to-dateVersus MSCI China at -10% year-to-date; attributed to a 16% de-rating and 4% earnings revision decline.
• Sector valuation18x 12-month forward P/EMore than one standard deviation below the historical average and about 29% below global peers at approximately 26x.
• Average 2Q26 combined margin change-3.0ppt year-on-yearGross-profit-margin less selling-expense ratio; selling-expense ratio rose 3.1ppt on average.
• Botanee 2Q26 revenue growth4% year-on-yearMissed Goldman Sachs estimates by 6%; online sales fell 9% while offline sales rose 48%.
• Bloomage 1H26 medical-aesthetics revenueRMB426 millionClass III medical-device sales rose about 85% year-on-year to 4.28 million units.
• Mao Geping 2H26 forecast26% sales growth and 22% net-profit growth year-on-yearGoldman Sachs expectation supporting its Buy view.

Impact & implications

The report argues that the sector’s discount creates potential valuation upside, but recovery depends on competition easing, channel return on investment improving and consumer demand strengthening. Within this setting, Goldman Sachs favors local companies with differentiated products, effective in-house content and livestreaming, stronger offline execution, disciplined costs and credible upgrade pipelines.

Risks

• Slower-than-expected recovery in China consumption sentiment or sustained intense competition could prolong online margin pressure.
• New-product concepts may remain volatile without a clear ingredient or product cycle.
• Company-specific risks include slower category penetration or product development, higher marketing spending, competitive pressure, regulatory risk and uncertain new-brand adoption.

What to watch

• Whether local brands benefit from easier 2H26 comparison bases and whether Double 11 demand remains muted.
• Evidence that competition is easing and that channel return on investment is improving.
• The evolution of Tmall, Douyin, e-shelf, KOL livestreaming and in-house livestreaming mixes.
• Delivery of major hero-SKU upgrades, including Proya Red Gem Cream 4.0, Forest Cabin essential oil 6.0 and Giant Biogene Collagen 3.0.
• Recovery in broader consumer sentiment and the pace of Hainan duty-free sales recovery.