From 2014 to 2019, only eight companies in the cosmetic industry successfully launched an IPO in China. However, unprecedentedly, 14 cosmetic-related companies successfully established an IPO or announced their plan to launch an IPO in the past half-year of 2020, though the whole economy in China was hard-hit by the breakout of COVID-19.
The reasons behind the frequent IPOs
The rapid rebound of the beauty industry in the post-COVID19 period shows the great potential of this market, which undoubtedly gives cosmetic companies confidence to launch IPOs. The data about retail sales from National Statistics Bureau shows that the YoY growth rate of the cosmetic sector has reached 20.5% in June, making it the fastest recovering sector [1]. The stock prices of most cosmetic companies also witnessed remarkable increases in the same period, suggesting investors’ confidence for the cosmetic market.
The development of ChiNext, a NASDAQ-style subsidiary of the Shenzhen Stock Exchange, also contributed to this trending. ChiNext’s listing standards are less stringent than those of the Main and SME Boards of the Shenzhen Stock Exchange, and it aims to attract innovative and fast-growing enterprises, which made it appealing for companies. More than half of the beauty-related companies participating in the IPO this year have targeted the ChiNext. In contrast, in the past five years, beauty-related companies have favored the main board market.
The hidden signals behind the IPO wave
In this IPO wave, there are different types of beauty-related companies, including beauty-brand companies, cosmetic ingredient companies, and cosmetic packaging companies. Their prospectuses reveal some industrial signals.
Beauty brand companies: Blue Moon has proved itself with a total of 25.828 billion yuan in three years of revenue and the first ranking in 11 consecutive years (2009 to 2019) in China's laundry detergent market [2]. The trump card of BOTANEE, Winona, performed excellently in the market, and now has become the representative of the skincare product tailored for sensitive skin. Sanda used multiple brands to compete for the market.
Beauty-brand E-commerce operation companies: For beauty-brand e-commerce operation companies, launching an IPO is not an easy task. Lili & Beauty disclosed the IPO prospectus in 2016, but it was rejected in 2018. In the list, the reason for being rejected was "a major reliance on Tmall/Taobao platforms and questioning the sustainability of the business model and profit model."
Although Lili & Beauty and YOUQUHUI have now successfully established an IPO this year, it seems that the profit model of beauty-brand e-commerce operation companies is still relatively single and highly dependent on the e-commerce platforms.
Cosmetic packaging companies: According to a report released by Marketsand Markets, the global cosmetics packaging market is expected to grow from 345.51 billion yuan in 2020 to 425.94 billion yuan in 2025, with a compound annual growth rate of 4.03% [2]. The rapid development of the global beauty market has contributed to the packaging companies’ IPOs and further development.
However, the packaging material suppliers mentioned in the above table have three major risks:
The risk of high dependence on important customers.
The risks of changes in the overseas market environment, such as geographic conflicts and exchange rate issues.
Insufficient ability to adapt to environmental protection standards through innovative research and development.
Biomedical cosmetic ingredient companies: The popularity of new biomedical cosmetic ingredients, such as hyaluronic acid, has attracted much traction from the capital for this hugely profitable sector. In the wake of the success of Huaxi Biotech (hyaluronic acid supplier) in the stock market, Trauer Biotechnology and Imeik Technology Development launched IPOs. Their prospectuses show that both companies’ gross profits are higher than 80% [3] [4].
Traditional cosmetic ingredient companies: Compared to the biomedical cosmetic ingredient companies with their own brands, traditional cosmetic ingredient companies’ biggest shortcoming is the dependence of big single clients.
In summary, the entire industry chain of the beauty market is snowballing. As more and more upstream companies enter the capital market, their right to speak will also become more influential.
