Best earnings among peers, strong momentum sustained

（以下内容从招银国际《Best earnings among peers, strong momentum sustained》研报附件原文摘录）
珀莱雅(603605)
Proya’s 2Q24 results beat consensus with revenue/net profit +41%/37% YoY (1H24revenue/net profit +37.9/40.5% YoY), mostly contributed by the accelerated salesgrowth of main brand to 37.7% YoY. The earnings ranked the top among peers. 1H24GPM dropped by 0.7 ppt. and steadied at 69.8%, accompanied by the 3 ppt. increasein selling expense ratio to 47%, due to the prolonged 618 promotion cycle, continuousrise in unit cost of livestream marketing, and high e-commerce return rate. Full-yearguidance wise, the company aims to maintain GPM at ~70% and maintain the NPMin a slight upward trend. Maintain BUY with TP slightly trimmed to RMB 133.86, basedon 35x 2024E P/E.
Hero SKUs outperform consistently benefiting earnings. Proya continued toconsolidate the “hero product strategy”, 1H24 image promotion fees +50% YoYand selling expense ratio hiked 3 ppt. YoY to 46.7%. Thanks to the hero productsthat powered up re-purchase rates on both Tmall and Douyin (now at 40%+ and30%+, respectively) and its contribution of revenue further increased to 57%, upfrom 55% in 1Q23. Considering the high margin of hero products, we see boththe top line and bottom line growth to remain intact for 2024E. Amid thechallenging landscape, the company’s priority of achieving steadfast marketshare in the upcoming 11.11 may increase marketing expense ratio in 2H, givenDouyin’s unfavourable mechanism and the high return rate circumstancebroadened.
Visible sustainability of sub-brand growth. The skincare segment reported+37% YoY revenue growth on a relatively high base, while both make-up andbody & hair segment achieved growth exceeding 42% YoY, demonstrating the allthree major BUs are now on track of sustainable growth. Meanwhile,management reaffirmed the overseas expansions plans on major sub-brands,especially TIMAGE and Hapsode. Looking forward, we believe that the readiedproducts portfolio targeting wide price ranges and the experienced BUmanagement team should provide solid support to overseas’ steady growth.
Solid customer base ready for improving offline presence. With the changingcircumstances, Chinese consumers continue to embrace the concept of"upgrading and replacing with domestic brands". We believe that Proya's trackrecord of educating consumers positions the company for further growth. Lookingahead, after exiting the KA channels, the company will continue to leverage itsonline and offline marketing resources to launch premium anti-aging skincareseries and gradually establish offline counters in shopping mall of tier 1 & 2 city,in line with its premiumization development strategy.
Valuation. We largely maintain our 2024E-26E earnings forecasts. Maintain BUYwith TP slightly trimmed to RMB133.86, based on 35x 2024E P/E, to reflect theweakening consumer sentiment in 2H.