\u3000\u30 Shaanxi Zhongtian Rocket Technology Co.Ltd(003009) 55 Jahen Household Products Co.Ltd(300955) )
Main points:
The downstream cosmetics market has strong toughness, and diversified development brings growth opportunities for OEM enterprises
The demand of China's cosmetics market is still strong. According to Euromonitor, the scale of China's cosmetics market will reach about 510.3 billion yuan in 2020, and the CAGR will be 9.7% from 2009 to 2020. In 2020, affected by the epidemic, the scale of the global cosmetics market decreased by 4% year-on-year. The growth rate of China's cosmetics market was 7% year-on-year, showing strong toughness. At the same time, the cosmetics market presents the characteristics of diversified population, channels and brands. (1) New cosmetics brands have emerged. The compound growth rate of the number of skin care and make-up brands from 2016 to 2018 is 9.5% and 10.5% respectively. When new brands first enter the market, they often invest more resources in brand construction and marketing and have no independent production capacity, thus contributing to the growth of OEM demand for cosmetics. (2) Consumer groups are diversified. According to AI media, the market scale of Chinese men's skin care products in 2020 was 8 billion yuan, and the compound growth rate from 2016 to 2020 was 15.5%. The diversification of the crowd requires enterprises to speed up the renewal of products, provide more product combinations, put forward higher requirements for the production capacity of brands, and provide opportunities for the growth of OEM enterprises. (3) Cosmetics e-commerce channels have risen rapidly, and the market share of e-commerce channels reached 27% in 2018. The rise of online sales channels requires more diversified ways of brand promotion, prompting brands to focus more on brand operation and market development, and entrust product production and even R & D to professional enterprises.
China's cosmetics OEM industry has low concentration and is expected to benefit from the new cosmetics regulations
The pattern of China's cosmetics OEM industry is relatively scattered, and mainly small and medium-sized enterprises. Among them, cosmesch (China) was the enterprise with the highest market share in 2018, accounting for 5.26%. As a local leading enterprise, northbell has a market share of 3.65%. Since 2022, a number of new cosmetic regulations will be implemented. Among them, the "cosmetic quality management specification" requires the control and traceability of the whole process of cosmetic material procurement, production, inspection, storage, sales and recall. At the same time, it puts forward specific requirements for the production environment, which improves the cost of cosmetic production enterprises. We believe that after the implementation of the code, brands that are difficult to meet the production quality requirements and can not realize rapid adjustment in the short term will rely more on OEM enterprises for production. The head OEM enterprises with better production facilities and production management system and richer capacity reserves are expected to benefit, and the industry concentration is expected to increase.
Capacity expansion + expansion of ODM + one-stop service capability to help the company's performance growth
(1) the further expansion of the company's business is constrained by the production capacity. In 2020, the production capacity utilization rate of the company's plastic packaging containers, cosmetics and home care products were 80% / 97% / 74% respectively. It can be seen that the overall production capacity utilization rate of the company is still in a relatively saturated state under the influence of the epidemic. The company raised funds through IPO to build the production base of cosmetics and plastic packaging containers. After reaching the production capacity, it is expected to achieve an annual output of 38000 tons of cosmetics and 300 million plastic packaging, which greatly alleviates the limitation of the company's existing capacity shortage. (2) The company expanded ODM and further built its own moat. From 2017 to 2019, the company's ODM mode revenue was 1748 / 3327 / 75.61 million yuan respectively, accounting for 11% / 13% / 24% of the total revenue. As ODM business participates in product R & D and formula design, the added value of products is much higher than that of OEM business. It is expected that with the further expansion of ODM business, the company will continue to expand the breadth and depth of cooperation with existing customers, and attract more brands to cooperate. (3) Downstream cosmetics customers are of high quality. Through strict quality certification and assessment, the company has successfully integrated into famous cosmetics supply chain systems at home and abroad, such as Johnson & Johnson, Yunnan Botanee Bio-Technology Group Co.Ltd(300957) , Yu Meijing, poly Wally and so on. In the first half of 2020, the company accounted for 28% / 22% / 12% / 12% of the sales revenue of Johnson & Johnson, poly Wally, Yunnan Botanee Bio-Technology Group Co.Ltd(300957) , Yu Meijing cosmetics respectively. As the company provides one-stop service for the coordinated development of daily chemical product OEM / ODM and plastic packaging business, it reduces the cost of internal and external communication and quality control, and is expected to further enhance customer stickiness.
Investment advice
The downstream demand for cosmetics has maintained a rapid growth, and the diversification of brands, people and channels has prompted brands to have higher production capacity, which has brought opportunities for the development of OEM / ODM enterprises. At the same time, the implementation of the new regulations on cosmetics has improved the production quality requirements, and the small and medium-sized OEM enterprises with insufficient production capacity are expected to be cleared, which is good for the head OEM enterprises. After the new production capacity of the company is put into operation, the production capacity restriction will be lifted and the business scale will be further expanded. The one-stop service capability helps to enhance customer stickiness. At the same time, the company's expansion of ODM business with higher barriers is expected to broaden the growth margin. We expect that the company's EPS from 2021 to 2023 will be 1.16, 1.69 and 2.25 yuan / share respectively, corresponding to 20, 14 and 10 times of the current share price PE respectively. For the first time, give a "buy" rating.
Risk tips
Capacity expansion is less than expected; Industry competition intensifies; Rising raw material costs, etc.
