MGP's subscription status and IPO analysis [HK IPO] (with Dolphin Research brief review)

Company Name: Maogeping (01318.HK, hereinafter referred to as the "Company")

Sponsor: CICC

Underwriters: CICC, China Galaxy International, Huatai, Guotai Junan, CCB International, etc.

Cornerstone Investors: Ivy Asset Management, CPE Investment, ZhenFund, Seraphim Advantage, Mega Prime, Brilliant Partner Fund LP, and China Core Fund, totaling approximately 39.3%.

Subscription Period: December 2 - December 5

Listing Date: December 10

Sponsor and Cornerstone Investors

Once again, CICC is the sponsor. CICC's historical performance has been discussed many times before—generally below average. As for the cornerstone investors, they account for 39.3% this time, which is a moderate level. However, among them is Ivy Asset Management (Hong Kong). Although their stake is small (3.93%), the IPOs they participate in are usually of high quality, with most seeing significant gains or minor losses, showing a clear right-skewed distribution—quite reliable.

IPO Rating: ★★★★

Subscription Multiple

As of 2 PM today, the margin financing multiple was 4.6x. According to industry insiders, the institutional placement may already be oversubscribed. Combined with the long buildup, it’s likely to explode—100x is no problem, and there’s even a chance to exceed 1,000x. Although a 50% clawback could create some selling pressure, if subscriptions are hot enough, the scarcity effect and buying sentiment should absorb the short-selling pressure. Among the four stocks with over 1,000x subscriptions this year, except for Yuanxu Technology, the others have seen decent gains.

IPO Rating: ★★★★★

Valuation Assessment

The company’s IPO price is set at HKD 26.3-29.8, likely at the upper limit. At the upper limit, the post-IPO market cap would be around HKD 14.024 billion, with a P/E ratio of 14.24x and a P/S ratio of 3.56x. Compared to Hong Kong-listed peers like Shangmei Holdings and Sa Sa International, the P/E is lower, while the P/S is higher.

In terms of gross margin, net margin, and cash flow as a percentage of revenue, Maogeping’s profitability and cash-generating ability far surpass these comparable companies. Therefore, I believe this valuation is quite reasonable.

IPO Rating: ★★★★

Fundamentals

As the only Chinese company among China’s top ten high-end cosmetics groups, Maogeping ranks 8th in the domestic high-end cosmetics market with a 2.9% share. It has distinct characteristics, driven by both online and offline channels. As of June 2024, online and offline revenue contributions were roughly equal. The company emphasizes offline counter development, offering rich in-store experiences to enhance customer engagement and brand perception, resulting in higher offline repurchase rates.

Over the past three years, the company’s revenue has grown rapidly at an annualized rate of 35.4%, with net profit nearly doubling. Revenue and profit have increased year after year, with further acceleration in the first half of 2024: Maogeping’s revenue reached RMB 1.972 billion, up 41.0% YoY, while net profit was RMB 493 million, also up 41.0% YoY.

Its gross margin performance is also outstanding. The prospectus shows that the company’s gross margins for 2021-2023 were 86.1%, 85.6%, and 85.8%, respectively. What does this mean? It basically crushes all peers in the cosmetics industry—even global giants like L’Oréal and Estée Lauder trail by 10-15 percentage points in gross margin.

The high margins stem from strong brand power. Maogeping’s personal IP is highly influential, leveraging film and TV works to connect with celebrities and consumers. Coupled with exquisite product packaging and premium customer experiences, the brand successfully cultivates a "luxury" image.

Although Maogeping repeatedly describes itself as a high-end brand in the prospectus, it’s more accurately positioned in the mid-to-high segment—mid-tier products with high-end services, making consumers feel they’re getting a high-end product at a price lower than true luxury brands like Lancôme or Estée Lauder.

In terms of raw material costs and R&D spending, comparable companies spent around 85% of procurement (excluding OEM) on raw materials in the first half of 2020, while Maogeping’s raw material cost ratio was just 60% in 2021. Additionally, the company’s R&D spending is below 1% of revenue, and its patents are mostly design-related. Of its 49 patents, only 2 are invention patents, 4 are utility model patents, and the remaining 43 (88%) are design patents.

That said, achieving far-above-industry profitability through packaging, marketing, and branding—selling cheap things at premium prices with market acceptance—is no small feat. As for whether low R&D will hurt long-term growth, the company plans to allocate 9% of the raised funds to R&D. Only time will tell how effective this will be.

IPO Rating: ★★★★★

Conclusion

As one of this year’s most anticipated IPOs, Maogeping’s subscription sentiment is naturally high—no worries there. However, focusing solely on capital and 筹码面 without considering fundamentals is like building on sand. Fortunately, the company’s financials are solid, with strong profitability and cash flow, providing a firm foundation for its listing. Personally, I think this stock is worth subscribing to and will actively participate.

Overall Rating: ★★★★

Bonus: Quick Take on Dmall (02586.HK):

Dmall’s subscription closes at 9 AM tomorrow. As for whether to subscribe, I’m conservative. The three sponsors—UBS Securities, China Merchants Securities, and CMB International—have mixed track records this year: the first two sponsored only one IPO each, while CMB International has two wins and one loss. Overall, their performance is decent. However, Dmall’s fundamentals are weak, with persistent losses and heavy reliance on related-party transactions. Its overseas business (80% from Hong Kong, lol) is counted as "international." As of 2 PM today, the margin multiple was 3.59x. I’ll check again tomorrow morning—if the final multiple is between 9-11x, I might take a small position on a whim. Historically, stocks with final multiples of 7-15x have had some upside potential.

Overall Rating: ★★★