Header photo source: Mao Geping Cosmetics via Weibo.
On its debut day, Mao Geping Cosmetics (MGP) stunned the Hong Kong Stock Exchange. Its shares skyrocketed to HKD 52.6 (USD 6.7) by close, marking a 76.51% leap from the offering price and cementing a market capitalization north of HKD 25.1 billion (USD 3.2 billion). The fervor surrounding the IPO echoed the company’s subscription phase, where investors flooded the offering with HKD 173.8 billion (USD 22.2 billion) in margin financing—outpacing even China Resources Beverage’s HKD 132.4 billion (USD 16.9 billion) IPO.
Yet, after the initial euphoria, MGP’s stock price began to settle, a reflection of tempered market optimism. Analysts credit this initial surge to MGP’s high-end positioning, a rarity among Chinese beauty brands, though concerns about the industry’s long-term prospects loom. Since the start of 2024, signs of a modest recovery in China’s beauty industry have emerged, but the overall market remains constrained. The crucial question is whether MGP can endure as a trailblazer in this challenging landscape.
“Investors have mixed feelings about Mao Geping,” said Bai Yunhu, a veteran beauty industry commentator. “On one hand, investors see the future potential of China’s beauty industry. On the other, they harbor doubts about the sustainable competitiveness of domestic brands. This may partly explain the recent high turnover rate of MGP’s shares.”
The broader market picture casts a shadow. Data from China’s National Bureau of Statistics showed retail sales of cosmetics reached RMB 43.4 billion (USD 6.1 billion) in November, a 26.4% year-on-year decline. From January to November, cumulative sales dropped 1.3% to RMB 401.5 billion (USD 56.2 billion).
Financial headwinds are evident across the industry. In Q3 2024, Yatsen Holding, parent of Perfect Diary, reported RMB 677 million (USD 94.8 million) in revenue, down 5.7% year-on-year, alongside its sixth consecutive quarterly loss. Botanee, known for Winona, posted a net loss of RMB 69 million (USD 9.7 million), a year-on-year plummet of 153.42%.
The Chinese beauty market, once ablaze with growth, has cooled significantly over the past two years. The slowdown in online sales has posed challenges for domestic beauty brands, making sustained and profitable growth increasingly elusive. Within this landscape, MGP, with its premium positioning, robust offline presence, and emerging online channels, stands out as a potential model for others navigating the industry’s turbulence.
Mao Geping, the visionary behind the brand, first captured national attention in 1995 with his work on the hit television series Wu Zetian. The show’s lead actress, Liu Xiaoqing, famously portrayed a character spanning ages 16–80, a feat made possible in part by Mao’s groundbreaking makeup artistry. His contributions earned him widespread acclaim and set the stage for his future endeavors.
In 2000, leveraging his newfound fame, Mao launched his eponymous beauty brand. Unlike many domestic competitors that gravitated toward e-commerce, MGP focused on establishing a high-end, offline retail presence. Its counters in premium locations, such as Shanghai’s Xujiahui—a hub for top international brands—positioned MGP as a luxury player in the market.
Over the years, MGP expanded into a full-fledged beauty group with three core businesses: cosmetics, skincare, and professional makeup training. As of the first half of 2024, the company operated 372 self-owned counters nationwide, staffed by over 2,700 beauty advisors serving an impressive base of 4.2 million registered members.
MGP’s path to a public listing has been marked by obstacles and strategic pivots. In late 2016, the company submitted a prospectus to the Shanghai Stock Exchange, seeking a listing on the main board. However, the bid ultimately failed. A second attempt in October 2021, following a review by the China Securities Regulatory Commission (CSRC), stalled with no progress made. By 2023, MGP’s renewed application faltered due to outdated financial documentation, prompting the company to withdraw its A-share listing application in January 2024. Complicating matters was the involvement of external shareholder JD Capital, under investigation for regulatory violations.
A breakthrough came in April 2024, when MGP severed ties with JD Capital through a HKD 730 million (USD 93.4 million) settlement. Freed from these constraints, the company turned its attention to the Hong Kong Stock Exchange, achieving its listing goal by the end of the year.
MGP’s shift to Hong Kong reflects broader dynamics in China’s capital markets. Unlike technology companies, cosmetics firms often struggle to align with A-share policies, which prioritize technological innovation. Other domestic beauty brands, such as Lalami and Inoherb, have faced similar hurdles in their attempts to list on A-share markets.
Shen Meng, executive director of Xiangsong Capital, highlighted the rationale for such transitions. “For beauty companies, moving from the A-share market to Hong Kong may be the only viable short-term option for going public,” Shen said. However, he cautioned that, while Hong Kong offers more flexible financing opportunities, investor trust hinges on consistent earnings growth.
Maintaining a premium edge
From the outset, MGP has stood apart from domestic competitors by embracing a premium positioning strategy. While many rivals focus on price wars, MGP has aligned itself with the luxury segment, placing its offerings in the same echelon as international icons like Estee Lauder and Lancome.
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An analysis of MGP’s flagship store on Tmall reveals its distinct pricing approach: cosmetics range from RMB 200–500 (USD 28–70), while skincare products command RMB 400–800 (USD 56–112). This strategy has underpinned MGP’s robust profitability. According to its IPO prospectus, annual revenue rose from RMB 1.577 billion (USD 220.8 million) in 2021 to RMB 2.886 billion (USD 404 million) in 2023, achieving a compound annual growth rate (CAGR) of 35.3%. Meanwhile, net profits more than doubled, climbing from RMB 331 million (USD 46.3 million) to RMB 664 million (USD 93 million), with a CAGR of 41.6%. In the first half of 2024 alone, MGP reported revenues of RMB 1.972 billion (USD 276.1 million) and net profits of RMB 493 million (USD 69 million).
The brand’s stronghold in the high-end market is further validated by industry data. According to Frost & Sullivan, MGP was the only Chinese company among the top ten high-end beauty groups in China in 2022, commanding a 1.2% market share. By 2023, its presence expanded to account for 6% of the domestic cosmetics market, ranking it second among Chinese brands.
As the Chinese beauty industry matures, competition in the premium segment has intensified. Rivals such as Yatsen Holding have made significant moves, acquiring the French luxury skincare brand Galenic in October 2020. Other domestic heavyweights, including Proya and Botanee, have also launched premium product lines priced at RMB 400–1,000 (USD 56–140), directly challenging MGP’s dominance.
For MGP, sustaining its premium position requires addressing critical challenges, particularly in research and development (R&D). From 2021 to 2023, the company’s R&D expenditures were RMB 13.703 million (USD 1.9 million), RMB 14.548 million (USD 2 million), and RMB 23.975 million (USD 3.4 million), representing ratios of just 0.87%, 0.8%, and 0.83% of revenue, respectively. By the first half of 2024, R&D investments reached RMB 15.267 million (USD 2.1 million), but the ratio fell further to 0.77%. This lags significantly behind international luxury brands like L’Oreal, which maintain R&D ratios exceeding 3%, and even domestic competitors such as Yatsen (4%), Proya, and Shanghai Jahwa (around 2%).
Another pressing concern is MGP’s reliance on its flagship brand. Between 2021 and the first half of 2024, its main brand accounted for more than 96% of the company’s total revenue, reaching 99.3% in 2024. Meanwhile, the budget-friendly sub-brand, Love For Keeps, has struggled, contributing just 0.7% of total revenue in the same period. This heavy dependence raises questions about long-term stability and growth potential.
Recognizing these vulnerabilities, MGP has initiated measures to diversify its product portfolio and enhance technical capabilities. In April 2023, the company began constructing an R&D factory in Hangzhou, scheduled to be operational within two years. Furthermore, in early 2024, MGP launched a cosmetics technology company in Hangzhou with a registered capital of RMB 500 million (USD 70 million).
These efforts signal a proactive approach to mitigating risk and driving sustainable growth. However, MGP’s journey is far from complete. To solidify its standing in the competitive premium beauty market, the company needs to expand its R&D investments, diversify its revenue streams, and reduce reliance on a single brand.
KrASIA Connection features translated and adapted content that was originally published by 36Kr. This article was written by Chen Sizhu for 36Kr.