The fragrance and cosmetics group sees room for growth as Chinese consumers show a growing appetite for branded perfumes and home fragrances.
Key takeaway: Eternal Beauty’s revenue grew nearly 10% last year to 1.86 billion yuan. The company manages 63 fragrance brands, including some of the biggest names in the global fragrance industry.
By Lau Chi-Hung
Eternal Beauty Holdings Inc. is hoping investors will pay an exorbitant amount for a stake in its luxury fragrance business.
The company manages a portfolio of premium fragrance and beauty products in China, which it sells through retail stores, online malls and social media channels. Aromatic products such as perfumes and scent diffusers have created a vibrant “olfactory economy” in China, promoted by influencers and lifestyle bloggers as a way to enhance personal well-being.
Pointing to research linking smell to emotions and memory, perfume retailers see an eager market among younger and middle-income consumers.
International perfume brand manager Eternal Beauty is now sniffing an opportunity to expand its presence by raising funds in the stock market.
The company filed for a listing on the Hong Kong stock exchange this month, saying it was well positioned to benefit from further expansion of China’s perfume market. It said it would use the IPO proceeds to upgrade its systems, raise the group’s profile and support its growth.
Since its founding in 1980, Eternal Beauty has built, developed and promoted a diverse portfolio of brands in the Chinese market, ranging from perfume and cosmetics, skincare, eyewear and home fragrances.
Sniffing out opportunities
Founder Liu Wei-rong established a branch in mainland China in 1987 to introduce international perfumes to domestic consumers. As China’s economy expanded, demand for perfumes and other aspirational products soared. The company has grown to more than 7,500 retail stores across more than 400 cities in mainland China, Hong Kong and Macau. With the advent of the internet, the company also began promoting its product line through e-commerce platforms and social media channels.
Eternal Beauty currently operates 63 brands, including Hermès, Van Cleef & Arpels, Chopard, Albion and Laura Mercier. The company also sells its own Santa Monica label, which began selling eyewear in 1999 and will add five fragrances in 2022.
The company designs and executes customized plans for brands targeting Chinese consumers through its channels and distribution network in Mainland China, Hong Kong and Macau. Services include product selection, sourcing, inventory management, logistics, warehousing, marketing and customer relationship management.
The company’s revenue has grown steadily over the past three years, from about 1.68 billion yuan ($230 million) in the period ended March 2022 to 1.7 billion yuan and 1.86 billion yuan respectively in the next two years. Annual profits for the same periods were 171 million yuan, 173 million yuan and 206 million yuan, respectively. Revenue increased despite a growing tendency for consumers to scale back spending as China’s economy struggles to get back on track. Eternal Beauty said its business had recovered after the pandemic and demonstrated some resilience to the economic slowdown.
Further growth
China’s perfume market may still have significant room for growth, driven by demand from young consumers who value self-care and enjoyable experiences. According to a Frost & Sullivan report, per capita spending on perfume in China will be just RMB 16 in 2023, well below the average spending in Japan, South Korea, the United States, and the United Kingdom. However, per capita spending on perfume is expected to grow at a compound annual growth rate (CAGR) of 14% over the five years to 2028.
According to the survey, perfume sales in mainland China, Hong Kong and Macau will surge from 14.6 billion yuan in 2018 to 26.1 billion yuan in 2023, a compound annual growth rate of about 12.3 percent. The report predicts the market will grow at a compound annual growth rate of 12.8 percent to reach 47.7 billion yuan in 2028.
The smell of success
With a market share of approximately 8.1%, Eternal Beauty will be the fourth largest perfume group in China by retail sales in 2023, behind only the three French companies that have their own brands. The company is number one in China in perfume brand management, with seven of its portfolio products ranking in the top 30 best-selling perfumes. As such, Eternal Beauty appears well positioned to benefit from the potential growth of the Chinese market in the coming years.
Global fragrance companies have long been eager to enter the vast Chinese market but can struggle with issues such as cultural differences, market regulations and a lack of an extensive distribution network. Even brands that have gained a foothold in major cities may need local expertise to penetrate second and third tier markets. In such cases, a brand management company with local knowledge like Eternal Beauty could help create the sweet scent of success.
Eternal Beauty has few direct peers to compare its market share to. Beauty stocks have come under pressure recently as investors worry about the impact of buyers switching to cheaper products and services. Despite the potential for market growth, Eternal Beauty may struggle to command a strong valuation in the current environment. Using cosmetics retailer Sasa International (0178.HK) as a benchmark, a price-to-earnings (P/E) ratio of 10 would value Eternal Beauty at about HK$2.5 billion.
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