"Da Xing" Huizheng lowered MAO GEPING's target price to 102.4 yuan, rating "Buy"

HSBC Research published a report indicating that MAO GEPING (01318.HK) is expected to meet its performance targets for 2025, but its performance is slightly below the bank's expectations due to a slowdown in offline channel growth and an increase in the sales cost ratio. Management has set a revenue growth target of 30% for 2026, which the bank believes is achievable with support from market share growth in the high-end cosmetics sector and expansion into skincare and fragrance categories. However, intensified competition in online channels may lead to a deterioration in online return on investment and put pressure on profit margins.

The report noted that MAO GEPING's net profit for 2025 is expected to grow by 37% year-on-year, with revenue growth of 30%, in line with growth targets. However, growth in offline channels slowed to 22% in the second half of the year (compared to 27% in the first half), coupled with a worsening sales cost ratio (51.5% in the second half, compared to 50.5% in the second half of 2024), resulting in performance slightly below expectations. The dividend payout ratio for 2025 is maintained at 40%.

HSBC Research has lowered its net profit forecast for 2026 by 7.5%, primarily reflecting an increase in the forecast for the sales cost ratio from 47.8% to 50.5% (48.3% for 2025), while the revenue growth forecast of 30% remains largely unchanged. The bank also lowered its net profit forecast for 2027 by 7.5%. The bank believes that MAO GEPING's growth theme remains robust, benefiting from its high-end positioning, the background of traditional Chinese culture, and continuous market share growth across various channels and categories, but intensified competition in online channels may impact profitability.

The bank maintains a "Buy" rating on MAO GEPING, with a target price lowered from HKD 110.8 to HKD 102.4, primarily due to an increase in the weighted average cost of capital (WACC) from 9.5% to 11.9%, reflecting increased uncertainty regarding profit margin prospects. The new target price corresponds to a forecasted price-to-earnings ratio of 26.9 times for 2027, compared to an average of 29.4 times since its listing