Zhejiang Merchants Securities: Cosmetics focus on valuation switching and Double Eleven catalysis as two main lines; new medical beauty products are expected to be approved in Q4, bringing catalysts

According to Zhichun Finance APP, Zhejiang Merchants Securities released a research report stating that new consumer brands in the cosmetics sector are expected to maintain a compound annual growth rate of 20%-30% in revenue and profit over the next 2-3 years due to product upgrades and brand building, with attractiveness in terms of prosperity and certainty. The Q3 off-season performance was stable, and Q4 is expected to see marginal improvement under the catalysis of Double 11, especially as leading brands exhibit significant siphoning effects during major promotions, with revenue and profit performance likely to lead the industry. The new product pipeline in the medical beauty sector is expected to receive approvals in Q4, providing further catalysts. Key Points from Zhejiang Merchants Securities: Cosmetics Prosperity Changes: Retail sales above the limit for cosmetics in July and August 2025 increased by 4.5% and 5.1% year-on-year, respectively, continuing steady growth. In Q3, performance was relatively weak in the off-season, with some companies experiencing a decline in revenue growth compared to the previous quarter. Considering the pre-emptive expenses for Double 11 and rising traffic costs, the firm expects the sector's profit performance to lag behind revenue performance. The firm anticipates that MaoGeping and Shangmei Co., Ltd. will lead the industry in performance, with Proya showing single-digit growth in revenue and profit, Shanghai Jahwa performing well online, and SYG expected to continue its low double-digit revenue growth trend in Q2, with profits turning positive. Looking ahead to Q4 2025, without significant new traffic/new categories/new channel dividends, demand in the beauty industry is expected to stabilize, with the overall market likely to continue low single-digit growth. Industry Insights: The effectiveness of influencers is marginally weakening, and brands are focusing more on the certainty and sustainability of traffic The rising cost of influencer marketing and uncertainties in conversion are gradually becoming apparent, testing brands' self-broadcasting capabilities. Marketing strategies have significantly changed: reliance on influencer marketing has shifted to a resurgence of celebrity endorsement models, with the "new" celebrity endorsement model adopting a more flexible matrix-style and lightweight operation, with shorter collaboration durations (quarterly or limited marketing cycles) and refined collaboration titles (such as brand ambassador, brand friend, etc.), building a spokesperson matrix (including positively perceived sports stars, traffic stars, and evergreen stars). The "new" celebrity endorsement model not only leverages the immediate sales conversion brought by the celebrity's personal fans but also helps brands break through demographic barriers and strengthen brand image. Medical Beauty Prosperity Changes: The approval of upstream consumables is accelerating, and competition is fierce, while the difficulty of maintaining and acquiring new customers for downstream terminal institutions continues to rise. The firm expects LANCY's medical beauty business to see a slight improvement in Q3 compared to H1, but revenue is still expected to decline by low single digits year-on-year. Industry Insights: Upstream seeks "new," downstream seeks change The growth rate of demand expansion is slowing, with an increasing number of products such as hyaluronic acid, botulinum toxin, youth needles, and girl needles being approved in the upstream consumables sector, leading to fierce competition. Consumer demand needs to be driven by new materials, and it is recommended to pay attention to new products with licensing advantages, with optimism about the potential of PDRN new materials. Downstream, Xinyang is exploring a "Sam's Club" model in medical beauty, with a focus on the pace of chain replication from first-tier cities to second and third-tier cities and the pace of increasing self-supplied product ratios. Risk Warning Intensified industry competition, marketing investment conversion not meeting expectations, and medical beauty new product approvals falling short of expectations