Key Highlights:

- Mao Geping aims to raise up to $300 million in its IPO.

- The company's profit and revenue surged nearly 40% in the first half of this year.

- The IPO is expected to attract attention from both Chinese and regional Asian investors.

A Transformative Journey in the Beauty Industry

Mao Geping, a revered name in the beauty industry, is preparing for a transformative journey, akin to "face changing" — a captivating art form in Sichuan opera. Geping, famous for his makeup mastery, has leveraged his skills to build a renowned cosmetics brand. The company’s sole sponsor for this IPO is China International Capital Corporation (CICC), suggesting a regional focus on investors familiar with Mao’s legacy.

Official Listing and Market Context

On November 7, the CSRC officially registered Mao Geping's listing, a necessary step for any Chinese company planning an overseas IPO. This marks a significant comeback, as the brand previously attempted and failed to nab a spot on China's domestic A-share market in 2016 and 2021.

Despite a challenging market dubbed as a “consumption downgrade,” which has hit discretionary goods hard, Mao Geping’s latest financial disclosures tell a different story. The company's revenue for the first half of 2023 jumped by 41%, reaching 1.97 billion yuan ($272 million) compared to 1.4 billion yuan the same period last year. Their profit mirrored this growth, climbing to 492.5 million yuan from 349.3 million yuan, buoyed by impressive gross margins roughly around 85%.

Market Position and Consumer Trends

Operating within a booming Chinese beauty market valued at 579.8 billion yuan in 2023, Mao Geping holds a unique position. It is the only domestic name among China's top 10 premium beauty brands, capturing 1.8% of the market. Interestingly, the premium beauty segment is outpacing the mass market growth, indicative of shifting consumer preferences.

Interestingly, China's market for color cosmetics stood at 116.8 billion yuan in 2023, with skincare products dominating at 463 billion yuan. Mao Geping's product lineup heavily leans into color cosmetics, representing nearly 75% of its revenue in H1 2023.

A Shift Towards Domestic Brands

Recent years have seen a strong shift towards domestic cosmetics brands, driven by national sentiment and a consumer inclination for cost-effective products. This trend plays to Mao Geping's advantage, especially as consumers become more budget-conscious amid an uncertain economic landscape.

The Legacy of Mao Geping

Mao Geping himself is a significant figure in this narrative. At 60, the once opera performer has gracefully shifted from the stage to shaping the beauty industry, famously providing makeup for Chinese athletes at the Paris Olympics and even working with Olympic Committee President Jacque Rogge during the 2008 Beijing Olympics.

Geping's rise to prominence began in the 1980s after graduating from the Zhejiang Vocational Academy of Art. With deep roots in opera, he transitioned into entrepreneurship by founding his brand and the Institute of Makeup Artistry, run by his wife, Wang Liqun.

Business Dynamics and Financial Health

Nevertheless, the company’s success heavily relies on Geping's charisma and expertise, posing potential risks if his reputation encounters challenges. Financial strains are also emerging as evident in decreased cash reserves, which dropped from 1.14 billion yuan to 552.9 million yuan by mid-2023, largely due to dividend payouts and escalating marketing costs.

Notably, Mao Geping Cosmetics operates like a family business, with many board members being relatives. As Geping nears retirement, the brand may face crucial transitions that could impact its identity and effectiveness in engaging consumers on platforms like Weibo and Douyin.

Future Outlook and IPO Significance

In a market rife with competition, mastering product development is essential. While many peers invest heavily in R&D, Mao Geping has not publicly reported consolidated R&D expenditures. Plans for IPO proceeds indicate a shift towards enhancing in-house production capabilities, with plans to establish a dedicated R&D center in Hangzhou.

The cosmetics industry is currently experiencing varied sales ratios, reflecting a diverse landscape. Potential P/S ratios point towards an estimated valuation for Mao Geping around 8 billion yuan ($1 billion), a strategic position against rivals like Chicmax and Yatsen.

The success of its IPO will not only signify a new chapter for Mao Geping Cosmetics but may also reflect broader trends in consumer behavior within China's evolving beauty sector. As all eyes turn toward Hong Kong, stakeholders are poised to see how this once-local brand redefines itself on the global stage.