China Cosmetics 1H26 2Q26 wrap Online margin pressure persists and offline remains resilient; 2H26 key to watch for local p...

Equity Research 7 September 2026 | 8:22PM HKT

1H26/2Q26 wrap: Online margin pressure persists and offline remains resilient; 2H26 key to watch for local players vs MNCs

Our 1H/2Q26 preview highlighted deteriorating online margins alongside more Valerie Zhou | resilient offline channels, and we see the results reinforced this trend given that Goldman Sachs (Asia) L.L.C.

MGP/Forest Cabin/Botanee/Shanghai Jahwa reported GPM - selling ratio in the Adrian Chung | range of -1.7ppt to +5ppt in 1H/2Q26, outperforming the industry average of -3ppt Goldman Sachs (Asia) L.L.C. (see Exhibit 10) and MGP/Forest Cabin registered DD% offline SSSg, translating into 20%+ offline yoy revenue growth. In comparison, key global players achieved LSD-MSD% yoy in the offline channels.

China beauty sector recorded a 20% price index decline in 26TD (vs. MSCI China down 10% YTD), driven by a 16% downward re-rating and a 4% downward earnings revision, per Bloomberg consensus. China cosmetics sector currently trades at trough valuation level of 18x forward PE (Exhibit 13) compared to global peers trading at 26x (Exhibit 15). While we remain conservative for 2H26 China beauty onshore due to subdued consumer demand, sustained recovery in Hainan DFS (see Asia Leisure team’s note), and intense competition as local players target a 2H rebound, while global peers maintain positive momentum (see our 2Q26 cosmetics global read across), we are turning relatively more constructive on local peers. We highlight four key themes to watch for in the 2H26: 1) Seasonality and base: Less pronounced online seasonality from 2025 indicating more muted consumer sentiments on Double 11, and in general local brands have much easier base for 2H26 (see Exhibit 1); 2) Channel Dynamics: Global peers have refueled since 2H25 on Tmall and E-shelf in Douyin coupled with online channels’ supports/subsidies, while anti-involution is a key trend; local brands are relying more on self-driven in-house live-streaming with improving efficiency (Exhibit 4); 3) SKU concentration vs Daily sales: Global brands started to exhibit higher SKU concentration around major shopping festivals, in contrast, local brands are actively avoiding direct face-to-face competition by focusing on driving consistent daily sales. (Exhibit 6). 4) Product upgrade pipeline: Besides, we see major SKU upgrades are set to sustain local brands momentum, i.e. Proya - Red Gem Cream 4.0 in Aug 2026/Forest Cabin essential oil 6.0 in Aug 2026/Giant Biogene Collagen 3.0 in 2027 while global peers saw upgrades mainly before 1H26; Conversely, we believe entirely new product concepts remain highly volatile due to the lack of a clear ingredient or product cycle, as highlighted in our 2026 outlook.

We upgraded Proya from Neutral to Buy as we look for its 2H26 acceleration driven

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by recovery of core brand following upgrades (see our upgrade follow up #1), while also seeing upside from 2027 on multi-brand portfolio from non-core brands and newly acquired Flower Knows. Meanwhile, we continue to favor players like Mao Geping (Buy) for reset expectation, but we believe the company could maintain its resilience and branding power, to deliver 26%/22% yoy 2H26 sales/NP; Buy Giant Biogene for the sequential recovery into 2H26 fueled by new product launches and the MA business; Buy Forest Cabin for its strong multi-product momentum, diversified channel layout and disciplined cost control on brand investments; However, we are Neutral on Shanghai Jahwa and Botanee and Sell on Bloomage.

Mao Geping first take/earnings review; Giant Biogene earnings review/Briefing/NDR highlights; Shanghai Jahwa first take/earnings review; Proya…