Rating: Neutral | Target Price: RMB 62–70 (fair value range, base scenario) | Current Price: RMB 62.80 (close, 2026-09-02) | Time Horizon: 12 months
Margin of Safety: approx. -1% (unified formula: (base-case fair value floor of RMB 62 − current price of RMB 62.80) ÷ current price); probability-weighted expected value approx. RMB 65.5 (approx. +4% vs. current price). Market cap RMB 24.87 billion, total shares outstanding 396 million.
PROYA is the only Chinese domestic beauty group to surpass RMB 10 billion in revenue (FY2025 revenue RMB 10.597 billion), with ROE of 26%, gross margin above 73%, net cash of RMB 4.58 billion, and a payout ratio of 52.6%—its quality still ranks in the top tier of Chinese domestic brands. But earnings momentum is genuinely deteriorating: FY2025 revenue declined for the first time since listing (-1.68%), 2026H1 non-GAAP (recurring) net profit fell -13.80%, the flagship brand has declined for two consecutive periods (-10.39%/-7.19%), and the selling expense ratio has risen for four consecutive periods to 53.13%—the apparent +46.26% growth in net profit attributable to shareholders came almost entirely from a one-time remeasurement gain of RMB 445 million on the step acquisition of Huazhixiao. At the current price of RMB 62.80, this corresponds to recurring PE(TTM) of approx. 18.2x and PB of 3.74x (4th percentile over the past 5 years); reverse DCF implies a terminal growth rate of only approx. 3.7%, meaning the market has already priced in a fairly pessimistic view. However, versus the base-case fair value (RMB 62–70), the discount is only approx. 5%, so the margin of safety is thin. Neutral rating: high quality, reasonably undervalued price, but earnings deterioration has not stopped—await the three verification points in 2026Q3–Q4 (organic decline in the Q3 report, flagship brand performance during Double 11, and expense ratio trajectory) before taking a directional stance. Key constraints: Huazhixiao goodwill of RMB 924 million with no performance commitments, the second-largest shareholder's 71.5% stake pledged and frozen, and H-share issuance dilution in the pipeline.
This is a left-side, confirmation-type opportunity, not a thick-odds trade available to execute right now. The evidence base consists primarily of primary financial reports and announcements (interim report, SSE inquiry letter response, quarterly operating data announcements), with good data availability; but two key forward-looking inputs rely on estimation: the decline slope on an organic (excluding consolidation) basis, and the degree of Huazhixiao's 2026 earnings realization—neither has company quantitative guidance to anchor to.
Upcoming Changes and Primary Drivers: Over the next 6–12 months, the first driver of the share price is flagship brand volume and price (determining which end of the RMB 1.2–1.4 billion normalized recurring profit range materializes), the second is whether the selling expense ratio has peaked, and the third is Huazhixiao's post-consolidation delivery and goodwill testing. The verifiable expectation gap: the current price implies approx. RMB 1.42 billion in 2027E recurring profit, about 20% below the sell-side consensus of RMB 1.77 billion—but note that the consensus 2026E (approx. RMB 1.65 billion) itself implies H2 2026 net profit attributable to shareholders of only approx. RMB 480 million (approx. -31% YoY), so the "street is more optimistic" narrative deserves a discount. Meanwhile, the rating structure is highly crowded (75% Buy); if organic decline fails to narrow in the Q3 report, there is a risk of concentrated downward revisions.
Verification and Falsification Points: 2026-10-30 Q3 report (note: the arithmetic contribution of Huazhixiao consolidation at approx. RMB 80 million/quarter will mechanically turn headline recurring profit positive—the organic decline excluding consolidation and the flagship brand's single-quarter decline must be examined); Double 11 in November 2026 (baseline: No. 3 on Tmall / No. 1 among domestic brands during 618 2026); skincare ASP in quarterly operating data announcements (-9.38% YoY in Q2) and expense ratio trajectory.
The YoY increase in net profit attributable to shareholders (RMB 369 million) is smaller than the remeasurement gain itself (RMB 445 million), meaning that after excluding one-time items, true profit was negative growth; further excluding Huazhixiao's June consolidation contribution, Q2 organic revenue was approx. -5% YoY (estimated), with the organic recurring profit decline even steeper. PE(TTM) of 13.3x (0th percentile over 5 years) is a distorted figure with the denominator deflated by one-time gains and cannot serve as a headline "cheap" signal; the recurring-basis reading of approx. 18.2x after exclusion is the valid number.
The flagship brand has declined near double digits for two consecutive periods, Timedance turned negative for the first time, and non-flagship revenue share rose to approx. 31%—the "hero SKU + flagship brand equity" growth engine is indeed decelerating. But it is premature to conclude "structural decline": first, the 2026Q2 skincare ASP decline of -9.38% is a structural effect of "a higher mix of lower-priced small-size essences" (per the company's own operating data announcement), not like-for-like price cuts; second, direct peer Botanee completed expense ratio normalization and revenue turnaround within roughly four quarters (2026H1 revenue +9.27%), proving that a Chinese domestic brand's plateau can be repaired. If the flagship brand's single-quarter decline narrows to within -3% in 2026Q3–Q4 and Double 11 holds a top-3 Tmall position, the "cyclical adjustment" thesis holds; if it stalls again and falls out of the top three, "structural" is confirmed.
Industry backdrop: online penetration has reached nearly 57% (Qingyan Intelligence basis; 56.85% in 2026H1) and traffic dividends have peaked, but the expense ratio rise is not an industry-wide mandatory cost—Botanee's selling expense ratio over the same period fell 3.64pct YoY to 50.53% while revenue grew +9.27%, indicating this is more about diminishing marginal returns on PROYA's own marketing spend (2026H1 revenue only +0.24%). The gross margin improvement (73.26%→74.32%, from lower raw material costs and cost reduction) cannot offset the expense ratio rise; recurring net margin has fallen from 14.4% to 12.4%. If the expense ratio rises another 3pct, based on FY2025 revenue scale it would erode approx. RMB 300 million of profit (equivalent to about 20% of recurring net profit).
A dialectical view of the deal: the consideration of RMB 2.827 billion corresponds to approx. 10.1x PE on Huazhixiao's FY2025 net profit of RMB 280 million, below PROYA's own 18x recurring valuation—buying an asset that grew revenue and profit ~50% annually from 2023–2025 with net margin rising to 23% in 2026Q1; on pricing alone, it is even cheap. The real risk lies not in the multiple but in the structure: no earnout protection; alignment between the 49% minority shareholders (founding team) and the listed company depends on a 5-year service period and a joint-control escrow account; and the "girly-heart" makeup aesthetic's dependence on a single 15–25 age cohort. Goodwill plus intangible asset fair value uplift totals approx. RMB 1.14 billion, about 17% of net assets attributable to shareholders; if growth stalls, impairment would be triggered, directly hitting an already declining profit center. The SSE inquiry letter's questioning of the target's earnings authenticity, the valuation's fairness, and whether the absence of an earnout harms minority shareholders is itself regulatory confirmation of the deal's risk.
The buffer must be assessed on a strict basis: net cash of RMB 4.58 billion (cash of RMB 5.373 billion + wealth management products, etc. − interest-bearing debt of RMB 929 million) is 18.4% of market cap, but RMB 1.316 billion of certificates of deposit are restricted; freely available net cash is approx. RMB 3.25 billion, about 13% of market cap. Dividend yield, based on FY2025 full-year dividends of RMB 784 million, is 3.15% (mechanically stacking the proposed 2026 interim dividend yields approx. 5%, but that is a cross-fiscal-year figure and cannot be double-counted), and the 2026 interim payout ratio has fallen to 39.6% (69.6% of the recurring basis). The implied-expectations estimate is first-order sensitive to the "fair multiple" assumption: at a fair multiple of 15x, implied 2027E recurring profit is RMB 1.66 billion (≈ consensus, expectation gap zeroed out); at 20x, only RMB 1.24 billion. Overall judgment: the current price sits in a "reasonably low" range, with an odds structure of bear -38% / base +5% / bull +66% (each on a median basis)—the upside is slightly favored, but Q3–Q4 data is needed to pull the probabilities over.
Within 18 months, all three key positions turned over—General Manager (Hou Yameng, son of the actual controller, took office 2024-09), CFO (2025-10), and Board Secretary (2025-08); former Board Secretary and CFO Wang Li departed in 2025-05 and sold 159,800 shares. Add the second-largest shareholder's shares being frozen on a large scale amid a family equity dispute and the H-share issuance in progress (issuance size undisclosed; assuming 10%–15% new issuance implies approx. 9%–13% dilution—our estimate, not company guidance)—the density of governance variables is the highest since listing. The ESOP transfer at RMB 59.70/share (approx. 5% discount to current price) is in itself a positive signal, but 50% non-subscription, funding that includes the company's special incentive fund, and no company-level performance conditions mean the binding strength is limited. 2026Q4 will be the new management team's first complete mega-promotion cycle, and also the window to judge whether the flagship brand's decline is industry-driven or execution-driven.
| Metric | FY2023 | FY2024 | FY2025 | 2026H1 (latest period) |
|---|---|---|---|---|
| Operating revenue (RMB bn) | 8.905 | 10.778 | 10.597 | 5.375 |
| Revenue YoY | +39.7% (core) | +21.04% | -1.68% | +0.24% |
| Net profit attributable to shareholders (RMB bn) | 1.194 | 1.552 | 1.498 | 1.168 (+46.26%, incl. one-time) |
| Recurring net profit attributable (RMB bn) | 1.174 | 1.522 | 1.473 | 0.664 (-13.80%) |
| Gross margin | 69.93% | 71.39% | 73.26% | 74.32% (+1.06pct) |
| Net margin attributable | 13.4% | 14.4% | 14.1% | 21.7% (incl. remeasurement; recurring basis 12.36%) |
| Selling expense ratio | 44.61% | 47.88% | 49.63% | 53.13% (+3.54pct, like-for-like) |
| Operating cash flow (RMB bn) | 1.469 | 1.107 | 2.193 | 0.951 (-26.48%) |
| Free cash flow (RMB bn, OCF−CapEx) | — | 0.807 | 2.024 | 0.884 |
| Cash + cash-like assets (RMB bn, period-end) | — | 4.082 | 5.061 | 6.048 (incl. 1.324 restricted) |
| Interest-bearing debt (RMB bn, period-end) | — | — | 0.912 | 0.929 (almost all convertible bonds) |
| Debt-to-asset ratio | — | 27.14% | 26.17% | 33.66% (elevated by Huazhixiao consolidation) |
Note: Goodwill of RMB 924 million was additionally recognized at end-2026H1 (Huazhixiao; approx. 14% of net assets attributable to shareholders of RMB 6.708 billion, approx. 17% including intangible asset uplift); ROE (FY2025) 25.95%, ROIC approx. 22% (this report's estimate).
Reasons for Metric Changes (line items with YoY ≥ ±20%, all per company disclosures): Net profit attributable +46.26% due to the RMB 445 million remeasurement gain on the step acquisition of Huazhixiao (non-cash, one-time); accounts receivable +324.88% to RMB 298 million, due to increased receivables from JD.com (JD alone accounts for 61% of receivables; at FY2025 year-end collections had dropped sharply by 86%—a collections-timing fluctuation); prepayments +134.71% to RMB 398 million, due to increased prepaid promotion fees and Huazhixiao consolidation (two of the top five prepayees are advertising agencies totaling approx. RMB 200 million); inventory +34.47% to RMB 854 million, mainly from Huazhixiao consolidation; minority interests +298.75%, as the Huazhixiao founding team holds 49%; administrative expenses +33.34%, due to staff compensation and labor service fees +RMB 33 million; operating cash flow -26.48%, due to lower sales collections and higher promotion fee payments (the FY2025 full-year +98.12% was also a JD collections-timing effect rather than an earnings quality improvement; the two years' swings are mirror images).
⚠ Chart "Selling Expense Ratio Rising Year by Year (%)" failed to render and has been omitted
2026H1 revenue was RMB 5.375 billion (+0.24%), of which Q2 single-quarter revenue was RMB 3.069 billion (+2.23%, growth turned positive); net profit attributable to shareholders was RMB 1.168 billion (+46.26%), recurring RMB 664 million (-13.80%; Q2 single-quarter -17.51%). The divergence between headline and reality is the entire point of this earnings report: of the +46.26%, RMB 445 million came from remeasurement gains; excluding consolidation and one-time items, Q2 organic revenue was approx. -5% (estimated). Structurally, the flagship brand (-7.19%) and Timedance (-21.93%) remain under pressure, while OR (+70.81%), Original Boost (+222%), and JingShi (+103.5%) grew rapidly but remain small in scale; on volume and price, ASPs for all three product categories fell YoY (skincare -9.38%, color cosmetics -14.90%, personal care -11.73%), which the company attributes to a structural effect from a higher mix of small-size essences and lower-priced products. The gross margin of 74.32% (+1.06pct, lower raw material costs + cost reduction) was swallowed by the selling expense ratio of 53.13% (+3.54pct), and the recurring net margin fell to 12.36%. Operating cash flow was RMB 951 million (-26.48%). Market reaction: the stock rose +7.64% the day after disclosure, and sell-side commentary was broadly positive (Soochow raised 2026–2028 attributable net profit to RMB 2.079/1.853/2.090 billion and maintained Buy; Capital Securities at RMB 1.87 billion with a target price of RMB 66 was the lowest on the street)—but note that what was raised is the headline basis including one-time gains; consensus 2026E of approx. RMB 1.65 billion already implies H2 attributable net profit of approx. -31% YoY, so the market's pricing of H2 deterioration is not naive. Against management's statements: the company provided no quantitative guidance, and the 2025 annual report's operating plan is only qualitative (tech-driven skincare, PROYA MED, multi-brand globalization).
Model in brief: an asset-light, multi-brand beauty platform—the own Huzhou plant produces mainly skincare (color cosmetics such as Huazhixiao go through OEM), approx. 95% of revenue is online, of which approx. 75% is direct-to-consumer (Tmall/Douyin/JD self-operated). The DTC structure internalizes traffic costs into user assets, but the essence remains a marketing-spend-driven, single-product business with no subscription/recurring revenue. Cash content of earnings: OCF/net profit attributable for FY2023–2026H1 was 1.23 / 0.71 / 1.46 / 0.81—highly volatile and dominated by JD collections timing (receivables balance swung violently from 518→70→298 million RMB); FY2025's 1.46 reflects collections timing, not a structural improvement in earnings quality. FCF/net profit was 0.52 / 1.35 / 0.76 (2026H1 on a recurring basis approx. 1.33); CapEx has shrunk from RMB 300 million in 2024 to RMB 66 million in 2026H1, with CapEx/D&A at 2.51→1.01→0.75—a clear cash-cow profile. One-time items test: 2026H1 non-recurring gains/losses of RMB 504 million accounted for 43.1% of attributable profit; core earnings should be assessed on the recurring figure of RMB 664 million (organic is lower). The company's self-reported disclosures contain no Non-GAAP reconciliation table, but there are signs of smoothing via capitalization of endorsement fees in long-term prepaid expenses (FY2025 added endorsement fees of RMB 81.13 million amortized over time—expensing them would make the selling expense ratio even higher). Return on capital: ROIC approx. 22% (FY2025, this report's estimate) far exceeds WACC of 10%—true moat territory. Maintenance CapEx interrogation: CapEx/D&A <1 indicates a cash cow, but caution is warranted on the absorption risk of a new 400-million-unit capacity project under construction at Huzhou even as capacity utilization sits at only 71.95%. Red flags: paid-traffic efficiency deteriorating over four consecutive periods (promotion fees +RMB 175 million despite zero revenue growth); capital allocation shifting from organic growth + dividends to high-premium M&A (goodwill + uplift of RMB 1.14 billion booked); structural decline in product ASPs. Customer concentration is not a concern (top five customers only 12.52%).
Consistency between words and deeds: pragmatic and exaggerated in parts; overall "partially delivered". The three vesting assessments of the 2022 restricted stock incentive plan (cumulative revenue/net profit growth of 25%/53.75%/87.58% off a 2021 base) were all achieved and unlocked—delivered; under the "Double-Ten Strategy" (top 10 globally within ten years), FY2025 revenue declined for the first time and the main brand fell -10.39%—not yet delivered at this stage; the Hua Zhixiao acquisition announcement estimated goodwill of about RMB 1.1 billion vs. actual booked 924 million—delivered. Shareholder friendliness: relatively high. FY2023–FY2025 payout ratios of approximately 42.7%/30.2%/52.6%, with cumulative cash dividends of RMB 1.766 billion over three years (125% of the three-year average net profit); the December 2025 buyback plan (RMB 80–150 million) has executed RMB 128.8 million; 2026H1 dividends + buybacks equal 50.61% of net profit attributable to shareholders (interim payout ratio 39.6%, 69.6% of non-GAAP/net-of-non-recurring profit); no secondary offering or rights issue since listing; RMB 752 million of convertible bonds 99.87% unconverted; the pending H-share listing (listing expenses of RMB 31 million already incurred) is a potential dilution item. Risk signals: three C-suite positions changed within 18 months (General Manager/CFO/Board Secretary), the former finance head reduced holdings immediately upon departure, the second-largest shareholder's 71.5% pledge freeze jumped within six months, templated responses on the investor platform to buyback-and-cancellation and market-cap management requests, and 2026 ESOP with only 84 actual participants (cap of 124) and no company-level performance assessment conditions disclosed.
By brand (2026H1):
| Brand | Revenue (RMB 100M) | Share | YoY | One-line business logic |
|---|---|---|---|---|
| Proya main brand | 36.92 | 68.8% | -7.19% | RMB 200–400 mass efficacy anti-aging (Ruby/Dual-Anti/Elasticity), mature stage |
| Timage | 5.51 | 10.3% | -21.93% | Chinese-aesthetics color cosmetics, first negative turn |
| OR (Off&Relax) | 4.77 | 8.9% | +70.81% | Asian scalp care, main growth second curve |
| Original Bota + Jing Shi | 3.95 | 7.4% | +222%/+104% | Gen-Z color cosmetics and efficacy care, low base high growth |
| Yue Feng Ti | 1.75 | 3.3% | +5.02% | Young-skin efficacy skincare, growth slowing |
| Hua Zhixiao (51% consolidated from June) | First consolidation period | — | FY2025 revenue 17.26 (100M)/net profit 2.80 (100M) | Girly-style color cosmetics, 85% DTC, ~10% overseas |
By channel (2026H1): online direct 4.042 billion RMB (75.3%, +3.50%), online distribution 1.048 billion (19.5%, -13.15%), offline 280 million (5.2%, +13.27%, OR driving Sam's Club/Hema/KKV new retail). Profit pillar: the main brand, with 72.6% of FY2025 revenue and a 73.5% gross margin, contributes about 73% of gross profit (this report's estimate)—the profit pillar remains the largest-revenue main brand, not the fast-growing new brands; the significance of the new brands is hedging, not yet a completed relay. Gross margin structure gap: main brand 73.5% vs. Hua Zhixiao 59.7%, a gap of about 14pct—the contract-manufacturing model and low price band of color cosmetics inherently carry lower margins than self-produced efficacy skincare; consolidation will dilute group gross margin by about 1–2pct (2026H1 gross margin still rose due to lower raw material prices and cost reductions offsetting it).
Accounting red flags: ① Large spokesperson fees capitalized in long-term deferred expenses (FY2025 additions of 81.13 million, ending balance 47.88 million, +57.63%), amortized in installments to smooth current selling expenses—severity low, but directionally true expense ratio slightly above the apparent one; ② Step acquisition recognized a one-off remeasurement gain of RMB 445 million (first a 38.45% minority stake, then cash acquisition of 12.55% triggering control), boosting current-period profit—non-cash and unsustainable—severity medium; the 2026 annual report and 2027 apparent growth will face this high base. Cross-period consistency: ① Selling expense ratio 44.61%→47.88%→49.63%→53.13% rising four consecutive periods while revenue growth declined each period; management's explanation consistent across periods ("increase in image promotion and marketing expenses") but never explaining deteriorating ROI on spend—"consistent but evasive"; ② Main brand revenue trend reversal of +36.36%→+19.55%→-10.39%→-7.19%; periodic reports only describe brand-upgrading actions without dedicated attribution—"company did not explain"; ③ Accounts receivable balance swinging sharply 518→70→298 million RMB, two periods attributed to the same customer (JD) in opposite directions—"consistent," a collections-timing issue rather than a revenue recognition anomaly.
Current market data (2026-09-02 close): price RMB 62.80, market cap RMB 24.87 billion. PE(TTM) 13.3x (0% percentile over past 5 years—depressed by one-off gains, distorted, not a cheap/rich signal); PE(TTM) excluding one-offs 17.5x; PE(TTM) on net-of-non-recurring profit 18.2x; static PE (FY2025) 16.6x (8% percentile over 5 years); PB 3.74x (4% percentile over 5 years); dividend yield (FY2025 basis) 3.15%. Average daily turnover about RMB 300–400 million (~1.5% of market cap), normal liquidity.
Peer comparison (2026-09-02 close, exchange quotes and company filings):
| Company | Market cap | PE(TTM) | PB | FY2025 revenue growth | ROE | Core difference |
|---|---|---|---|---|---|---|
| Proya | RMB 24.87B | 13.3 (17.5 ex-one-offs) | 3.74 | -1.68% | 25.95% | Multi-brand matrix + pure online DTC, largest scale |
| Botanee | RMB 14.09B | 25.6 | 2.29 | -6.58% (2026H1 +9.27%) | 8.29% | Sensitive-skin single brand, early recovery |
| Giant Biogene | HKD 27.54B | 14.3 | 2.56 | -0.4% (2026H1 -6.3%) | 22.50% | Recombinant collagen single brand, growth interrupted |
| Shanghai Jahwa | RMB 12.33B | 32.2 (thin profits inflate) | 1.74 | +11.25% (low base) | 3.94% | Channel-driven legacy brand, bottom of profitability |
| Marubi | RMB 12.40B | 54.3 (profit decline inflates) | 3.67 | +16.48% | 7.37% | Eye cream + livestream-driven; PL stalled |
Market-implied expectations: market cap RMB 24.87B − net cash RMB 4.58B = operating value of about RMB 20.3B; against 2026E organic net-of-non-recurring center of about RMB 1.23B, at a 10% WACC the implied perpetual growth rate is only about +3.7%; equivalently: current price ÷ 17.5x ≈ implied normalized net-of-non-recurring profit of RMB 1.42B, i.e., the market prices "main brand continuing a mild decline + Hua Zhixiao delivering per appraisal, zero growth thereafter"—about 20% below sell-side consensus (2027E about RMB 1.77B, median target price RMB 80.2/+27.7%). What the current price demands is not growth, but "no further deterioration."
Three layers of value: asset value about RMB 16.9/share (net assets attributable to shareholders as the floor); EPV at zero growth about RMB 43.1/share (normalized EPS RMB 3.15 = organic net-of-non-recurring center RMB 1.25B ÷ 396M shares, WACC 10%, including net cash of RMB 11.56/share); current price 62.80 − EPV 43.1 = growth option of about RMB 19.7/share, about 31% of the current price—the market is paying roughly 30% for growth (Hua Zhixiao consolidation + new brands + overseas + H-shares), neither "pricing only zero growth" nor euphoric. EPV inputs deliberately use the 2025–2026E net-of-non-recurring center rather than the 2024 peak of RMB 1.52B, because the main brand is still in a downtrend and the zero-growth base should be the current run-rate, not the peak.
Three scenarios and odds:
| Scenario | Probability | Fair range | Exit anchor | Key swing factors |
|---|---|---|---|---|
| Bear | 30% | RMB 34–44 (midpoint 39, -38% vs. current) | 2028E net-of-non-recurring 1.05–1.15B × 13–15x (Giant Biogene 14.3x after growth interruption; company's 5-year low ~13x) | Main brand entrenched at -10%/yr + expense ratio out of control + Hua Zhixiao impairment |
| Base | 50% | RMB 62–70 (midpoint 66, +5% vs. current) | 2027E net-of-non-recurring 1.45B × 17–19x (peer Botanee 25.6x/Giant 14.3x, center ~20x; company's 1-year median PE 17.2x—an anchor independent of the current multiple) | Main brand stabilizing with mild decline (-3%~0%) + Hua Zhixiao delivering net profit of 450–500M + expense ratio stabilizing |
| Bull | 20% | RMB 94–114 (midpoint 104, +66% vs. current) | 2027–28E net-of-non-recurring 1.7–1.8B × 22–25x (Botanee 25.6x in recovery; comparable M&A case 35.4x as ceiling reference) | Main brand turning positive in 2027 + Hua Zhixiao net profit 550–600M + smooth H-share issuance |
Probability-weighted expected value about RMB 65.5 (+4%); the bear case of 34–44 fully covers the market's most pessimistic published forecast (lowest target price: Capital Securities at RMB 66, 2026-08-25, implied market cap about RMB 26.1B)—the bear-case floor sits about 48% below it, no coverage gap; the base range falls between the market's most pessimistic (66) and most optimistic (Orient Securities 85.92) anchors. The bull-case probability was cut from a symmetric 25% to 20% (the empirically evidenced direction is currently on the downside: organic -14%~–24%, expense ratio +3.5pct, no current evidence of reversal), with the bear case raised accordingly to 30%. Our own earnings forecast: 2026E revenue RMB 11.25–11.65B (+6%~+10%), attributable profit 1.80–1.88B (including one-offs)/net-of-non-recurring 1.35–1.42B (-8%~-4%); 2027E revenue 11.8–12.7B, attributable profit 1.46–1.56B (apparent -17%~-20%, due to the 2026 high base)/net-of-non-recurring 1.43–1.53B (+1%~+13%)—about 15% below consensus; the disagreement is whether organic recovers to positive growth or merely stabilizes with a mild decline. Management provides no quantitative guidance to compare against.
Conclusion: reasonably cheap, target price RMB 62–70 (= base scenario), margin of safety about -1% (base-case floor of 62 is below the current price of 62.80). Quality (ROE 26%/net cash/dividends) and price (low percentiles) are assessed separately: this is "a good company at a reasonably cheap price," not deep undervaluation—the realization of the growth option (Hua Zhixiao has no earn-out; H-share dilution) still requires validation through 2026Q3–2027 annual results. Crowded ratings (75% buy) are themselves a left-side risk: if organic does not narrow in the Q3 report, concentrated downward consensus revisions could break below the lower bound of the "reasonably cheap" range.
Industry size: three tiers of measurement for China's cosmetics market—China Association of Fragrance Flavour and Cosmetic Industries: 2025 full-channel transaction volume exceeded RMB 1.1 trillion; National Bureau of Statistics: 2025 cosmetics retail sales of enterprises above designated size RMB 465.3 billion (+5.1%, outpacing total retail +3.7%); Euromonitor (cited): 2024 skincare market about RMB 271.2 billion, ~50.5% of the cosmetics market. Growth is moderate: 2023 about +5.2%, 2024 low single digits (e-commerce mega-promotions pulling forward demand + destocking by international majors), weak recovery from 2025—cosmetics retail above designated size has posted 13 consecutive months of positive growth since mid-2025 (July 2026 single month +6.8%, 2026Q1 +5.9%). Consensus among major institutions for 2026–2030 CAGR is low-to-mid single digits (4–6%; the Association's 2026H1 actual +4.6% serves as an anchor). Structurally faster-than-market segments: anti-wrinkle/whitening efficacy skincare (Jan–Nov 2025 Douyin anti-wrinkle GMV +50%, whitening +55.4%, per SWS Research)—exactly the territory where the Proya main brand is positioned.
Value chain and profit distribution: raw materials (actives/packaging, gross margin 20–30%) → contract/self manufacturing (OEM gross margin 15–25%, overcapacity) → brands (gross margin 60–80%) → channels (online penetration 56.85%, per Guoyan Info, 2026H1). Gross profit pools at the brand layer but is being handed back at scale via traffic costs: industry selling expense ratios generally 45–55% and rising yearly; top livestream hosts' commissions can reach 50–60%—brands have strong bargaining power over upstream but weak and weakening power over downstream platforms; "direct-to-consumer" essentially means internalizing traffic costs. Proya's 2025 online revenue of RMB 10.117 billion, 95.58% of total (77.39% direct), makes it the most thoroughly DTC domestic leader; its 2026H1 gross margin of 74.32% is the industry chain's highest, but its 53.13% selling expense ratio equally reveals the pace of giveback.
Supply-demand and competitive landscape: on the demand side, per-capita consumption remains below Japan/Korea, anti-aging demand is skewing younger, and ingredient-savvy consumers are driving "efficacy concentration upgrades"; but the mass price band shows a "dumbbell" shape (below RMB 300 is 58.88%; the RMB 300–1,000 middle band is squeezed), limiting pricing headroom; light medical aesthetics in 2026 posted consumption growth exceeding traditional skincare for the first time, simultaneously functioning as a functional substitute for premium anti-aging and a synergistic addition via post-procedure repair. On the supply side, barriers are "easy entry, hard scale-up": open contract manufacturing floods the market with new brands and violent shakeouts, but special-cosmetic registrations (20,155 applications in 2025), patented formulations, capital for scaled traffic buying, and hero-product repurchase systems are raising barriers at the top. Concentration is low and fragmented (CR10 about 21–25%, per Guoyan Blue Book); in 2025 mainstream e-commerce beauty TOP20, Proya ranked first among brands with a 4.20% share (L'Oréal Paris second at 3.58%, per Jiemian/Guoyan). Competitive intensity is high: international majors are counterattacking in China from 2025H2 (L'Oréal China recovering to mid-single digits; Estée Lauder mainland China posting double-digit growth for two consecutive quarters), with domestic brands locked in close combat in the RMB 200–400 band (Proya/Hanhoo/Comfy/Vichy-rival Winona as direct rivals); 2026 618 beauty category posted its first negative growth, with Douyin's top three taken by Estée Lauder/SK-II/L'Oréal—the industry has shifted from across-the-board growth to a zero-sum redistribution of share—2025 annual results diverged sharply: Proya -1.68%, Botanee -6.58%, Giant Biogene -0.4%, Shanghai Jahwa +11.25% (low base), Bloomage -21.82%.
Cycle and regulation: the industry is in late growth/early maturity; the cycle bottomed in 2024 and has been rising mildly since 2025—"weak recovery + strong divergence"; leading indicators: NBS monthly cosmetics retail sales, Douyin beauty category GMV (May 2026 single month RMB 28.458 billion), Tmall beauty GMV, online penetration (56.85% near its ceiling), and the scissors gap between leading companies' expense ratios and net-of-non-recurring net margins. Regulation is neutral-to-positive for leaders: the Cosmetics Supervision and Administration Regulation tightened efficacy claims via registration/filing (favoring leaders with special-certificate reserves and in-house actives), the NMPA's November 2025 Opinions on Deepening Cosmetics Regulatory Reform to Promote High-Quality Industry Development, July 2026 new filing rules, and the first mandatory national standard, General Requirements for Cosmetics Safety (GB 7916—2026, effective 2028-01-01), systematically raising compliance costs and accelerating tail shakeout; tighter livestream e-commerce regulation is pushing de-influencer-ization—short-term pain, long-term purification.
Domestic brand share and the company's position: local brands' share rose from 50.40% in 2022 to 57.37% in 2025 (Association/Guoyan basis, +7pct over five years), but "big yet not rich"—concentrated in the mass band with per-customer value below international majors. Proya is the biggest beneficiary of share consolidation toward leaders: 2025 revenue of RMB 10.597 billion, the only listed domestic brand to break RMB 10 billion (second-place Shanghai Jahwa 6.317 billion, Giant Biogene 5.519 billion); market-share figures should be presented side by side—mainstream e-commerce beauty brand GMV basis: 4.20%, first in the industry (Jiemian/Guoyan, 2025); Euromonitor group basis: ~1.7% China share (2023), rising yearly, and the company's HK prospectus claims first among domestic groups (all-market basis); the gap between the two bases lies in sample scope (e-commerce universe vs. all channels including offline and international majors across all price bands), with consistent trends. The moat has three sources: hero-product strategy (Ruby/Dual-Anti/Elasticity contributing 60%+ of main-brand revenue, managing lifecycle via "ingredient + special certificate + annual iteration"), organizational and channel efficiency (77% direct; store/self-broadcast-led organic traffic structure—maintaining 74% gross margin and 12%+ net-of-non-recurring net margin at the same 53% expense ratio, more stable than livestream-dependent peers), and the most validated multi-brand matrix among domestic peers (Timage 1.255 billion, OR high growth, Jing Shi doubling, Hua Zhixiao consolidated—versus Marubi's PL at -24.78% stalling and Botanee's new brands failing to take over). The company's current role is shifting from "share aggressor" to "winner that outlasts the zero-sum cycle through profit and matrix resilience"; the stock's -22.9% over the past year has partially priced in the lowered growth center.
A generic financial framework easily misses three decisive variables in the cosmetics business—and Proya's current investment story rests precisely on all three:
First, hero-product lifecycle management. The industry's hero products average a heat cycle of only 2–3 years; Proya's Ruby/Dual-Anti have extended lifecycles since 2020 via "annual iteration + special certificates," a core capability against "viral-product quick decay"; the main brand's FY2025 -10.39% signals that the classic hero products have entered late maturity, and Ruby Cream 4.0/Elasticity Essence 4.0 (launched at the PSTC 2026 conference, rolling out from September, centrally validated at Double 11) are the first touchstone of the relay's success—tracking indicators: the new products' positions on Tmall/Douyin anti-aging-repair single-item rankings, and whether skincare category ASPs stop falling.
Second, Douyin channel costs and traffic-buying efficiency. Industry expense ratios trend upward at 45–55%, top host commissions at 50–60%; Proya internalizes traffic costs into user assets via store/self-broadcast + 77% direct sales, but the 53.13% ratio shows the traffic-deflation dividend is exhausted and traffic buying has entered diminishing-returns territory (peer Botanee's ratio is actually falling). Future profit elasticity depends on how quickly repurchase/membership assets replace paid traffic—tracking indicators: the scissors gap between "promotion expense growth vs. revenue growth" and the sequential expense-ratio trend.
Third, brand-matrix incubation success rate. Domestic second curves generally fail (Marubi PL 2026H1 -24.78%, Botanee's new brands not scaling, Shanghai Jahwa's multi-brand chronically imbalanced); Proya is the only domestic group with a validated multi-brand model, with non-main-brand revenue rising to about 31% in 2026H1. This is the mathematical basis for re-rating from "single-product brand" (11–13x) to "platform group" (15–20x)—but after the Hua Zhixiao consolidation, the quality of "platformization" in turn hinges on goodwill delivery; the swing factors are interlocking.
Rating: Neutral; Confidence 0.55; Time horizon 12 months. Proya's fundamentals remain solid (ROE 26%, net cash, payout ratio 50%+, the only multi-brand platform among domestic Chinese brands), and the price already reflects fairly pessimistic expectations (PB at the 4th percentile of the past 5 years, implying 3.7% perpetual growth). However, the earnings downturn has not yet bottomed (organic non-GAAP -14% to -24%), the margin of safety is thin (baseline floor of RMB 62 below the current price), and governance and dilution variables are clustered. Strategy-wise: do not short further nor add to positions at the current price—leave position decisions to the data. If 2026Q3 organic decline narrows to single digits, the flagship brand's single-quarter decline is ≤-3%, and expense ratios fall quarter-over-quarter, revise upward toward the upper end of the baseline or even the bull case; if Q3 organic deteriorates, the flagship brand falls out of Tmall's top three on Double Eleven, or expense ratios break above 55%, then the bear case (RMB 34–44) begins to be priced in.
Key risks: Florasis goodwill impairment (no earn-out clause, exposure of RMB 1.14 billion / 17% of net assets); entrenched decline of the flagship brand; loss of control over selling expense ratio; judicial disposal of Fang Yuyou's frozen shares (approx. RMB 2.56 billion market value; concentrated disposal could shock the price by -10% to -20%); H-share issuance discount and dilution; sentiment disruption from the convertible bond put option and the December 2027 maturity repayment (net cash coverage is ample). Key catalysts: Q3 organic verification (2026-10-30), flagship brand stabilization during Double Eleven (2026-11), resolution of the convertible bond put (2026-09-16/18; declared amount below RMB 200 million would be a positive), H-share hearing (2026Q4), completion of buyback and implementation of interim dividend (2026Q4), and volume ramp-up of new products—Ruby Cream 4.0 / Vitality Essence 4.0 (Q3–Q4).
This report is based on publicly available information as of 2026-09-03 (company periodic reports, announcements, earnings call minutes, third-party industry data, and sell-side consensus). The organic metrics, 2026–2027E earnings forecasts, and three-scenario fair value ranges are the author's own estimates, not company guidance. Price reference: 2026-09-02 closing price of RMB 62.80.