The first perfume stock, earning 200 million a year

Zebra Consumer Chen Biting

With Eternal Asia Holdings Limited (referred to as "Eternal Asia Holdings") submitting its IPO application to the Hong Kong Stock Exchange on July 18, the Hong Kong stock market is about to welcome China's "first perfume stock."

You probably haven't heard of this company's name, but you should know the products it sells. Perfumes from internationally renowned brands such as Hermès, Bvlgari, Versace, Van Cleef & Arpels, Chopard, Coach, LV, Burberry, and Moncler enter the Chinese market through Eternal Asia.

Liu Jurong, the founder of Eternal Asia, started his entrepreneurial journey in Hong Kong in the 1980s. In 1988, he introduced international perfumes to China by setting up a boutique perfume counter in a Beijing department store.

Today, Eternal Asia Holdings has captured the hearts of many beauty enthusiasts through nearly 50 perfume brands of different tiers, growing into the absolute leader in this niche market.

According to Frost & Sullivan data, based on 2023 retail sales, the company is the third-largest perfume group in the integrated markets of mainland China, Hong Kong, and Macau. Eternal Asia's main competitors are mostly the perfume divisions of multinational consumer goods giants. Therefore, it is also the only brand management company among the top five perfume groups.

Eternal Asia Holdings started in Hong Kong and established itself in the Chinese market, similar to the paths of many Hong Kong-based enterprises, such as Hang Lung Group and New World Development in commercial real estate, and Chow Tai Fook and TSL in the gold and jewelry market.

Their operational styles are also strikingly similar. In the difficult-to-balance triangle of growth, profitability, and stability, they always firmly prioritize the latter two, even leaning toward conservatism.

Eternal Asia Holdings' brand expansion has been relatively slow in the past. Over nearly 30 years, the total number of brands has only reached slightly over 60, with more than a dozen added in the past year alone.

For the fiscal years ending March 31 in 2022, 2023, and 2024, the company's revenues were RMB 1.675 billion, RMB 1.699 billion, and RMB 1.864 billion, respectively, with an annual compound growth rate of less than 6%.

However, the business is stable enough, with consistent growth in scale and performance, and relatively impressive profitability. The gross margin has remained stable at over 50%, and the net profits for the last three fiscal years were RMB 171 million, RMB 173 million, and RMB 206 million, respectively, with the net profit margin increasing from 10.2% to 11.1%.

The characteristic of Hong Kong-based enterprises is that, no matter how the external environment changes, once they establish industry expectations and their own competitiveness, they can steadily advance their business, maintaining a bottom line of profitability and progressing step by step. This is strategic resilience, a spirit that mainland enterprises urgently need to learn in the current era.

The growth prospects for the perfume market are relatively clear. With economic development, rising consumer purchasing power, and the expansion of the middle-class population, the penetration rate of perfumes in the Chinese market is set to increase significantly.

Frost & Sullivan data shows that in 2023, the size of China's perfume market was RMB 22.9 billion, and it is expected to reach RMB 44 billion by 2028. From 2018 to 2023, the compound annual growth rate was 15%, and it is projected to be 14% from 2023 to 2028, far exceeding other segments of the cosmetics industry, such as skincare, personal care, and makeup.

As a leader in the perfume industry, Eternal Asia Holdings' path to growth is clear—expanding its brand portfolio. Since last year, the company has increased its brand expansion efforts, adding 10 managed brands between April 1, 2023, and March 31, 2024, and another four since April this year.

At the same time, Eternal Asia is actively nurturing its own brand, Santa Monica. In 1999, the company launched Santa Monica-branded eyewear, and in 2022, it introduced five entry-level premium perfumes under the same brand.

To break through the ceiling of its perfume business, Eternal Asia Holdings is also expanding into cosmetics and other fields. The proportion of its other businesses, including cosmetics, makeup, eyewear, personal care, and home fragrances, has increased from 10.7% in fiscal 2022 to 18.3% in recent years, becoming a major growth driver.

Beyond enriching its product categories and expanding its brand portfolio, the company is also methodically diversifying its sales channels. Eternal Asia previously relied mainly on offline counters and specialty stores for sales. Many luxury perfume counters in high-end malls like SKP and MixC are operated by Eternal Asia. The company has over 7,500 offline sales points in more than 400 cities across mainland China, Hong Kong, and Macau. In recent years, it has expanded into e-commerce and social commerce platforms.

Additionally, to reduce reliance on licensed brands, further open up sales channels for major perfume platforms, and better engage young consumers, Eternal Asia has launched a new retail concept store called "Scent Box." The first store has already opened at Shanghai's K11 Art Mall. The company is also using Scent Box as a brand to explore new channels like e-commerce. In the future, this new retail format is expected to become a fresh growth driver for the company and one of the new stories Eternal Asia brings to the Hong Kong stock market.

As a third-party brand management company, the biggest risk is the uncertainty of licensed brands. However, perfumes are not the core business of brands like Hermès and Van Cleef & Arpels, so the likelihood of them breaking away from Eternal Asia to operate their perfume businesses independently is low. Isn't it better to steadily collect brand licensing fees?

Overall, Eternal Asia Holdings has stable operations and profitability while capitalizing on many trends in the consumer market. Given time, couldn't this be the next consumer sector dark horse in the capital markets?