More sales visibility in the medium term
- Proya released its key headline numbers for 2Q22. Sales grew by 25–35% yoy to Rmb1.27bn–1.37bn, and net profit rose by 15–22% yoy to Rmb130m–140m, driven mainly by strong sales growth in the 618 online shopping festival in 2022.
- Proya will release its detailed 1H22 financial results on 26 Aug.
- We expect the company’s sales to grow by 26.5% yoy in FY22F, with net profit up by 27.6% yoy.
- Reiterate Add with a higher DCF-based TP of Rmb188.
Strong sales growth in 2Q22
The company announced that sales grew by 25–35% yoy to Rmb1.27bn–1.37bn in 2Q22, stronger than our original expectation. The company’s net profit growth lagged slightly behind top-line growth, rising by 15–22% yoy to Rmb130m–140m, due mainly to a one-off impairment provision because the Company voluntarily recalled its Yugan Sunscreen due to quality issues in Apr and May. The net profit margin in 2Q22 declined by 1.2% pts yoy to 10.2%. During the 618 online shopping festival in 2022, the company’s sales of various brands achieved rapid growth. The GMV of the Company’s core brand, Proya, reached the top sales position in Tmall Domestic Beauty Products, Tiktok Domestic Beauty Products and JD.com Beauty Products. We believe the company’s brand awareness and market share have further improved.
New share options to drive motivation
The company will launch its second equity incentive scheme and grant 2.1m share options (0.75% of total shares) to 101 employees (3.6% of total full-time employees) including two top level managers, 44 middle level managers and 55 core employees. The share option plan requires that both sales and net profit must grow no less than a 23% yoy CAGR in FY21–24F.Though the company is still focusing on the mainstream market, its product structure has undergone a significant change since it launched its star product development strategy 2020.. The company’s average selling price has consistently improved, and during the 618 online shopping festival, the ASP improved from Rmb80– 400 per unit in 2021 to Rmb280–620 per unit in 2022, reconfirming the obvious product structure upgrade trend for the Proya brand. We believe that with such an attractive product mix, the company’s sales growth will have strong visibility in the medium term.
More mature self-live-stream team, ahead of its peers
Management said, during analyst meeting on 12 July, the company is less dependent on top KOLs’ live-stream sales, as its sales with top KOLs accounted for low-single-digits of total sales in 2021. The company has a strong self-live-streaming sales team with over 100 staff for the Proya brand. At the beginning of 2022, the company set up another independent live-stream team for the Timage makeup brand. Without the participation of top KOLs in this year’s 618 shopping festival, the company still achieved strong growth. Therefore, we believe the company has built a strong competitive advantage in the ecommerce channel, particularly on rising live-streaming channels, like Tiktok, ahead of most of its domestic peers.
Reiterate Add with a higher DCF-based TP of Rmb188 (WACC:8.9%)
We raised our EPS forecasts for FY22F–24F by 2.8–3.6%, to reflect 1) stronger-than-expected-sales growth, and 2) margin improvement from product structure upgrades. We believe the company will use its experience and advantages to continue to deliver strong sales growth in the live-streaming market. Downside risks include any quality issues and intensified market competition due to a slowdown in cosmetics consumption.