Can we keep the "top stream" of domestic products?

Written by Wu Lijuan

Editor丨Gao Yuanshan

Source: Bronco Finance

The drama of "marriage of wealthy families", the return of scholars and beauties, and the inheritance of trillions of family assets...... "Shuangwen" are shining into reality!

As the pioneering generation of private entrepreneurs retreated into the background, young entrepreneurs such as Zong Fuli of Wahaha, Shi Zhancheng of Jieliya, and Zhao Zelong of Qumei Home Furnishing have taken over one after another, and the second generation of enterprises is stepping forward step by step.

Recently, another second-generation Wenzhou enterprise has walked to the center of the stage. Proya, the leading domestic beauty company, changed its leadership, and Fang Yuyou, the former CEO and co-founder, withdrew and did not continue to serve as the company's director and general manager, and Hou Yameng, the son of deputy general manager and actual controller, took over.

As one of the representatives of domestic cosmetics companies, Proya has grown into an industry leader in the past 20 years, starting from a small county town and finding a place in the cracks with differentiated competition. At present, Proya is at the high point of development, ranking first in the revenue of domestic beauty companies in 2023 and the first half of 2024. However, behind the growth of revenue and net profit, Proya has also been criticized for "emphasizing marketing and ignoring R&D". For a long time, Proya has attached great importance to heavy investment and celebrity effect, and traffic stars such as Song Joong Ki, Li Yifeng, Cai Xukun, and Big S have all been historical spokespersons.

Proya's performance in the secondary market is not far behind, and its share price has risen from the issue price of 15.34 yuan / share to 110.09 yuan / share today, with a market value of 43.7 billion yuan.

At present, the market competition in the beauty industry is becoming more and more fierce, and after the new generation carries the banner of their parents, whether Proya's high growth can continue and whether it can firmly sit in the TOP1 of domestic beauty products will be a challenge.

"post-85s" take over

Some executives left

In mid-September, Proya held the first extraordinary general meeting of shareholders in 2024 to elect the new board of directors and members of the board of supervisors, and held a new board meeting to appoint the company's new senior management. Co-founder Fang Yuyou is not among them, after serving as a director of Proya for nearly 10 years.

Proya said that Fang Yuyou will not continue to serve as the company's director and general manager, and Hou Yameng, deputy general manager of Proya, is the son of Hou Juncheng and Fang Aiqin, the controlling shareholder and actual controller, was hired as the company's general manager, and was born in December 1988.

At present, Hou Yameng does not hold a stake in Proya. Hou Juncheng directly holds about 137 million shares of the company, with a shareholding ratio of 34.46%, and is the largest shareholder of Proya. Fang Yuyou is also the third largest shareholder, holding 15.03% of Proya's shares, behind Hou Juncheng and Hong Kong Securities Clearing Company Limited.

Regarding the reason for Fang Yuyou's departure, Proya said: "Mr. Fang Yuyou will not continue to serve as the company's director and general manager due to personal reasons, and will continue to be the company's co-founder and board advisor, assisting the company's strategic planning and operation and management support. ”

According to the "China Business Daily" quoted industry insiders, Proya's development in the past 20 years is different from Hou Juncheng's control of the "general direction", Fang Yuyou is the "chief trader" role in the whole process, and is the "first responsible person" for the operation and management of the company's brand, channel and team.

In recent years, Fang Yuyou has frequently reduced his holdings in Proya, and accelerated his business layout in the fields of rural cultural tourism, plant-based beverages, and commercial complexes.

In November 2020, as soon as the ban on L'Oreal's initial restricted shares held by Fang Yuyou was lifted, he threw out a shareholding reduction plan, and finally actually reduced his holdings by 6.6463 million shares and cashed out 1.118 billion yuan. From August 30, 2021 to February 13, 2022, it actually reduced its holdings of 5.8638 million shares and cashed out 1.117 billion yuan. From September 19, 2022 to March 17, 2023, 8.2975 million shares were actually reduced and 1.338 billion yuan was cashed out. In April 2023, Fang Yuyou disclosed the fourth shareholding reduction plan, which was not implemented in the end. Since 2020, Fang Yuyou has reduced his holdings of 22.206 million shares of Proya, with a total of about 3.573 billion yuan.

From offline to online, from low-end products to large-scale single product lines, Proya's development experience in important stages in the past has been attended by Fang Yuyou.

Proya also said that during Fang Yuyou's tenure, he has made outstanding achievements, not only leading the company to achieve breakthroughs in performance, building a multi-brand matrix, but also actively promoting the implementation of the "forward-looking 6*N strategy". This strategy has played a key role in the multi-dimensional construction of R&D, products, brands, and organizations, and promoted the company to build a systematic, standardized, and standardized system.

Source: Canned Gallery

Hou Yameng has been working in the e-commerce department of Proya since 2014, and has served as the director and deputy general manager of the company since September 2021. In the same year, Hou Yameng also served as the legal person, executive director and general manager of Hangzhou Caitang Cosmetics Co., Ltd., a subsidiary of Proya Holdings.

Zhang Yi, CEO and chief analyst of iiMedia Consulting, believes that judging from the current development of Proya, the word-of-mouth and actual sales, as well as the performance, are still good. The background and experience of the successor are also important, Hou Yameng used to work mainly in the e-commerce department, and Proya's main product sales channel was in the e-commerce trade. Therefore, he will still have a relatively solid foundation in some practical experience in brand product marketing, product channels and product positioning, and consumer cognition.

In addition to the replacement of the position of general manager, Proya's senior management has changed frequently in recent years, and even some core personnel have been lost.

In 2022, Jiang Ligang, the chief R&D officer who has served for more than 10 years, will resign, and he has launched the "Bubble Mask" and "Morning C and Evening A" series of popular models. On July 18 this year, Jiang Li just joined Pechoin. Her successor, Xiaolan Wei, former vice president of R&D for Coty Asia Pacific, will be in office from 2022 to 2024, and she will also leave in July this year, and the R&D work will be taken over by co-founder Cao Liangguo.

In addition, the former CMO Ye Wei will leave in January 2024, and his time in office is from 2018 to 2024, which is the stage of Proya's transformation and rapid development. Ye Wei has led Proya's revenue to grow from 2.361 billion yuan in 2018 to 8.905 billion yuan in 2023, and has now transferred to Shanghai Jahwa as a brand marketing consultant.

The half-year marketing exceeded 2.3 billion yuan

Rely on online channels

Women's money is easy to make, and this is vividly reflected in the beauty industry.

2023 is a year of comprehensive rise of domestic beauty and skin care brands, with domestic products surpassing foreign brands for the first time with a market share of 50.4%, and consumers' sense of identity with domestic products continues to increase.

In 2023, Proya will win the championship with a revenue of 8.905 billion, and Shanghai Jahwa, the leader of domestic beauty products that has been at the top of the list for many years, will retreat to second place with 6.595 billion, with a year-on-year decrease of 7.16%.

In the first half of 2024, Proya achieved operating income of 5.001 billion yuan, a year-on-year increase of 37.9%; The net profit attributable to shareholders of listed companies was 702 million yuan, a year-on-year increase of 40.48%, and continued to sit firmly in the first place. In the first half of 2024, the Proya brand ranked first on the Tmall platform, in both the essence category and the cream category, maintaining its leading position.

However, although Proya has successfully sat in the position of the leader of domestic beauty, while the performance growth continues, hidden worries are also emerging.

The

beauty industry has long been criticized for "emphasizing marketing over R&D", and Proya is no exception. From 2020 to 2022, its R&D expense ratios will be 1.92%, 1.65%, and 2%, respectively. In 2023, R&D expenses will be 174 million yuan, although a year-on-year increase of 35.59%, it is still far lower than other brands in the same industry.

Source: Canned Gallery

In comparison, Bethany's R&D expenses were 299 million yuan, and the R&D expense ratio was 6.07%; Shanghai Jahwa's R&D investment was 147 million yuan, and the R&D expense ratio was 2.22%; The R&D expenses of Juzi Biotech and Marubeni did not exceed 100 million yuan, and the R&D expense ratios were 2.1% and 2.8% respectively. According to the 2023 financial report, Bloomage Biotech has 926 R&D personnel, Bethany has more than 400 people, and Proya has only 322 people. According to the financial report data for the first half of 2024, Proya's R&D expenses accounted for 1.89% of revenue, far lower than Bloomage Biotech's 7.31%, Bethany's 4.64%, and slightly lower than Shanghai Jahwa's 2.07%, Giant Biotech's 1.9% and Shangmei Group's 2.24%.

However, although Proya does not invest much in R&D, it is most willing to spend money on marketing. Especially after the launch of the large-scale single product strategy in 2020, the sales expenses have reached a new high. Since 2020, its selling expense ratio has continued to grow, from 39.9% in 2020 to 44.61% in 2023.

From 2020 to 2023, Proya's sales expenses will be 1.497 billion yuan, 1.992 billion yuan, 2.786 billion yuan, and 3.972 billion yuan respectively, and the sales expense ratio will reach 39.9%, 42.98%, 43.63%, and 44.61% respectively. It is mainly for the incubation of new brands, the exploration of offline channels and overseas channels.

With the development of live e-commerce in full swing and the explosion of online channels, domestic beauty companies are paying more and more attention to marketing.

Source: pexels

In 2023, beauty companies see e-commerce as an opportunity to accelerate their development, but the price of chasing traffic is also expensive. As can be seen from Proya's annual report, heavy marketing has become one of the engines that drives revenue. Among them, Proya's sales expenses are mainly used for image promotion. In 2023, the company's image publicity and promotion expenses will reach 3.534 billion yuan, a year-on-year increase of 46.04%.

In other words, in 2023, Proya will invest 174 million yuan in R&D expenses, but 4 billion yuan will be used for marketing. It is worth noting that as of the end of 2023, Proya has 4.053 billion yuan of monetary cash on its books, and its sales expenses in 2023 are basically equal to the monetary funds on its books.

From January to June 2024, Proya's sales expenses were 2.34 billion yuan, accounting for 46.78% of operating income, an increase of 760 million yuan or 48.08% year-on-year, mainly due to a year-on-year increase of 688 million yuan in image promotion expenses, a year-on-year increase of 50.03%.

From 2020 to 2024, in the past four and a half years, Proya's sales expenses totaled about 12.6 billion yuan. Its sales expenses are mainly used for image promotion. In 2023, the image promotion fee will be as high as 3.534 billion yuan, a year-on-year increase of 46.04%. From 2020 to 2023, Proya has invested more than 8.8 billion yuan in image promotion.

Proya's net cash flow from operating activities in the first half of the year was 662 million yuan, a year-on-year decrease of 43.95%. As for the reasons for the change, Proya explained in the announcement that it was mainly affected by three factors: first, the year-on-year increase in operating income and the increase in cash received from the sale of goods; second, the increase in the payment for goods; The third is the increase in the cost of image publicity and promotion.

Proya is a sales model based on online channels and parallel offline channels. In fact, Proya seized the business opportunities of online channels very early, starting live e-commerce in 2016, and cutting into short videos such as Douyin and Kuaishou in 2018. In 2019, Proya still adopted a sales model that combines offline and online channels, with online revenue accounting for 53.09% and offline accounting for 46.91%. By 2023, the ratio of online and offline operating income has become 9:1, and the growth of operating income is mainly due to online channels, and the proportion of online direct channel sales will increase from 60.66% in 2021 to 75.91% in 2023.

Feigua data shows that at the beginning of 2023, Proya will have 1,943 Douyin anchors, of which the "beauty" tag has the most, reaching 115; There are 9 anchors with the "star" tag, including Jia Nailiang, Cao Ying, Zhu Zixiao, etc.

It's true that sales growth and brand exposure can be achieved through large-scale marketing, but it's more important for beauty companies to make breakthroughs in the technology field. Zhang Yi believes that the first is biotechnology and gene editing technology. These technologies can be used to develop new skin care products with specific effects, such as freckle removal, moisturizing, whitening, etc., to meet consumer demand for personalized and high-end skin care products. Secondly, there is still a broad application and development space in terms of biological extraction technology and pure natural extraction of essence and herbs. Especially in China, Chinese medicine is deeply rooted in the consumption habits of Chinese, and Chinese culture and medicine can be brought into play. In addition, strengthening digital marketing and intelligent manufacturing can improve the efficiency of enterprises, reduce the cost of enterprises, optimize production processes, mine and gain insight into consumer experience, and improve the efficiency of marketing.

The second generation is on top

Can Proya hold the "top stream"?

On Xiaohongshu, many consumers praise domestic beauty brands. From the original goose egg powder and incense powder to Shanghai alabaster and Dabao SOD honey, and then to today's Proya (603605. SH), Han Shu, Bloomage Biotech (688363. SH）。 The rise of domestic beauty is nothing new.

Proya's founder, Hou Juncheng, is a typical Wenzhou businessman, and in the 90s, he has been acting as an agent for various cosmetics, such as the well-known Ponji, Shiseido, and Kose. In 1999, Hou Juncheng moved from Yiwu to Hangzhou, and after accumulating certain resources and strength, he founded Proya in 2003. After the establishment of Proya, it was once ridiculed as a copycat domestic cosmetics that rubbed the popularity of "foreign brands".

Source: Oriental Fortune Stocks

To this day, there are still shareholders talking about Proya's name.

Unexpectedly, once regarded as an imitator of "copycat L'Oreal" by the outside world, it quickly gained a foothold in a few years and was successfully listed in 2017.

In 2020, Proya underwent a strategic transformation, in which there were two key changes: one was to establish a product-driven strategy and create large single products, and the other was to increase the proportion of online sales rapidly. In the 2020 annual report, Proya proposed for the first time to implement a large-scale single product strategy, and launched "bubble mask" and "glow bottle" respectively. The launch of the "Luminous Bottle" is to compete with Estee Lauder's "Little Brown Bottle" and SK II Fairy Water. It has also created large items such as ruby essence and double resistance essence.

Caitang is a brand founded by makeup artist Tang Yi in 2014 and acquired by Proya in 2019. In 2023, Caitang's revenue will exceed 1 billion yuan, which has also become another performance growth point in addition to Proya's main brand "Proya". However, Caitang's revenue growth slowed down. From 2021 to 2023, they will be 103.48%, 132.04%, and 75.06%, respectively.

On Double 11 in 2023, Proya surpassed L'Oreal for the first time and topped the TOP1 sales of Tmall skin care brands, becoming the highlight node in the history of domestic beauty. And this year's 618, Proya defeated L'Oreal again on Tmall and defended the championship.

Hou Juncheng once said that he wants to be China's Proya, and even the world's Proya, and strive to become an excellent century-old enterprise.

Although Proya sits on the top spot in domestic beauty, there is still a big gap compared with international giants such as L'Oreal and Estee Lauder. In the first quarter of 2024, L'Oréal's sales will be 11.24 billion euros (about 87.3 billion yuan), which is equivalent to nearly 10 times Proya's annual revenue (8.905 billion yuan).

From the perspective of product development history, Proya's earliest bispecific antibody and ruby products have only been 5 years, and the Estee Lauder small brown bottle has been 42 years now.

Source: pexels

According to iiMedia Research, the market size of China's cosmetics industry will be about 516.9 billion yuan in 2023, a year-on-year increase of 6.4%, and it is expected to increase to 579.1 billion yuan in 2025.

Especially at present, the demand for beauty consumption is strong, but the market competition has become fierce. Zhang Yi believes that although domestic brands have developed strongly in recent years, they are still only in the domestic market, mainly relying on cost performance. Since the fourth quarter of last year, the prices of leading domestic beauty brands have increased. However, in general, in terms of brand influence and international awareness, as well as R&D investment and innovation capabilities, there is still a relatively large gap between domestic brands and mature international brands in the world. In terms of segmentation of the high-end market, it is still concentrated in the mid-end or low-end market, and domestic products need to further enhance their brand image and attract more recognition from high-end consumers.

In the future, the domestic beauty industry will go from China to the world and seize more market share, and the road to scientific research is still long and difficult.

At present, Proya's second growth curve has begun to take shape. In the first half of 2024, the revenue of sub-brands Caitang and Off&Relax increased by more than 40% year-on-year. Among them, the revenue of Cai Tang and Off&Relax was 582 million yuan and 138 million yuan respectively; Yuefuyuan's revenue increased to 161 million yuan with a growth rate of more than 20%.

A number of brokerages also expressed optimism about Proya, and Minsheng Securities Research believes that in the short term, it is optimistic about the "Double 11" promotion to promote the company's sales growth; In the medium and long term, under the guidance of the "6*N strategy" and the development strategy of large single product brands, the company is expected to maintain the steady growth trend of Proya's main brand. However, it is still necessary to pay attention to risks such as intensified competition in the industry, the progress of new product research and development is less than expected, and changes in consumer demand.

In addition, the key to the succession of the second generation is the continuation of corporate culture inheritance and innovation ability.

According to the 2020 China Family Business White Paper released by Deloitte, the "second generation" generally faces many challenges in the succession process, such as insufficient network resources, balancing family relationships, and lack of business management experience.

Zhang Yi believes that in the face of fierce competition in the market, consumer demand will change very quickly, and how to maintain competitiveness in terms of products and market demand is very important. In addition, Hou Yameng is indeed relatively young, and it is indeed necessary to observe whether he can have better management and integration capabilities in promoting the company's strategy, or category matrix, and channel research and development. The industry has formed a very fierce competition, commonly known as "involution", as well as a complex business environment with external changes. For young people, there are huge unknowns when it comes to coping. Overall, his succession is a good time, both for growth and for concern.

Have you ever bought Proya's products? How was the experience? Leave a message and let's chat!

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