Recently, according to the publicly available information on Qichacha.com, Mao Geping Cosmetics Co., LTD. (referred to as “Mao Geping Cosmetics”) has made a new external investment in a company called Hangzhou Shangduhui Cosmetics Technology Co., Ltd. (referred to as “Shangduhui”), holding a 100% stake.
It is reported that Mao Geping Cosmetics was founded in 2000 and includes the high-end cosmetics brand MAOGEPING and the mass cosmetics brand LOVE FOR KEEPS. In addition to its cosmetics business, Mao Geping Cosmetics also operates a cosmetics school.
So, what is the intention behind this investment for Mao Geping Cosmetics?
Registered capital achieves 500 million yuan ($69.9 million)
According to publicly available information on Qichacha.com, Shangduhui was established on January 2nd of this year with a registered capital of 500 million yuan ($69.9 million), and it is wholly owned by Mao Geping Cosmetics. From its business scope, Shangduhui is primarily engaged in technology services, development, consulting, manufacturing of bio-based materials, wholesale and retail of cosmetics. The company operates within the field of natural science research and experimental development, indicating that Mao Geping Cosmetics may further expand its research and development through the establishment of this new company.
In terms of key personnel, Shangduhui enjoyed Mao Geping himself serving as the executive director, and two individuals named Mao are respectively appointed as the manager and supervisor.
It is worth mentioning that the registered address of the new company is Room 10XX, Wanyin Building, Shangcheng District, Hangzhou City, Zhejiang Province, which is the same location as Mao Geping Cosmetics. A founder of a Shanghai emerging brand informed CHAILEEDO, “Generally, when companies register their address together, it should be the focus projects of the parent company.”
Regarding Mao Geping Cosmetics’ new investment initiative, CHAILEEDO contacted the relevant person in charge of the company, who responded, “Currently, the company is indeed focusing more on research and development.”
In fact, this external investment is just a part of Mao Geping Cosmetics’ investment portfolio. According to publicly available information on Qichacha.com, Mao Geping Cosmetics controls 26 companies, spanning various fields such as scientific research and technical services, leasing and business services, wholesale and retail, information transmission, software, and information technology services.
Among them, 20 companies are wholly owned subsidiaries of Mao Geping Cosmetics, such as Hangzhou Xingyi Equity Investment Co., Ltd. (referred to as “Hangzhou Xingyi”), Hangzhou Keyunshi Biotechnology Co., Ltd., and Hangzhou MAOGEPING Image Design Art Co., Ltd. It is worth mentioning that Hangzhou Xingyi is the first investment company established by Mao Geping Cosmetics in its 23-year history. In terms of the investment chain, Mao Geping Cosmetics directly holds shares in 12 companies and indirectly holds shares in 14 companies.
CHAILEEDO noticed that Hangzhou Zhen’ai Cosmetics Co., Ltd., Hangzhou Laifu Cosmetics Co., Ltd., Chengdu MAOGEPING Image Design Art Co., Ltd., Hangzhou MAOGEPING Cosmetics Co., Ltd., and Boya Network Technology (Hangzhou) Co., Ltd. are currently in the process of being deregistered.
From a timeline perspective, Mao Geping Cosmetics began its external investments in 2008, with its first investment going to Hangzhou Laifu, where it held a 100% stake. From 2008 to 2023, over the course of 16 years, Mao Geping Cosmetics made a total of 25 investments. Notably, within the three-year period from 2021 to 2023, the company made 10 investments, indicating a significant acceleration in its corporate expansion.
Nearly 600 million yuan ($83.9 million) in land acquisition, Mao Geping Cosmetics firstly invested in contract manufacturing, and accelerated research and development
As one of the companies that entered the Chinese cosmetics and beauty track early on, Mao Geping Cosmetics has established a good reputation in the industry over its more than 20 years of existence, relying on the influence of its founder, Mao Geping, in the cosmetics field. It has also made several attempts to enter the capital market with excellent performance. According to the prospectus, from 2020 to 2022, Mao Geping Cosmetics saw a rise in both revenue and profit. Over the course of three years, the company achieved revenues of 880 million yuan ($123 million), 1.43 billion yuan ($200 million), and 1.68 billion yuan ($234.9 million), respectively, with net profits increasing from 198 million yuan ($27.69 million) in 2020 to 349 million yuan ($48.8 million) in 2022.
However, Mao Geping Cosmetics’ path to an initial public offering (IPO) has not been smooth. As of October 2023, the IPO status of Mao Geping Cosmetics is still shown as suspended. Public analysis suggests that the unsuccessful attempts at an IPO may be related to the company’s insufficient investment in research and development. According to the prospectus, from 2020 to 2022, the research and development expenditure ratio of Mao Geping Cosmetics was 1.21%, 0.96%, and 0.87% respectively, with 44 research and development personnel accounting for 1.43% of the total employees. In comparison, the research and development expenditure ratio for listed cosmetics companies is generally between 2% and 5%.
At the same time, Mao Geping Cosmetics also explicitly stated in the prospectus that “the company has not yet established its own cosmetics production line, and MAOGEPING’s products are mainly produced through outsourcing.” However, after realizing its own shortcomings, Mao Geping Cosmetics has been actively engaged in research and development and supply chain construction since last year.
In April 2023, the MAOGEPING cosmetics research and development factory broke ground and started construction in Hangzhou. The project covers an area of 44,838 square meters and is expected to be completed and put into operation within two years. It is understood that Mao Geping Cosmetics will focus on the two core dimensions of “digitalization + greenery” to create an innovative high-end cosmetics research and development factory that integrates research and production centers, product aesthetic design centers, and consumer visit centers. After the project is operational, it will fully introduce cutting-edge international research and development technology and professional technical personnel.
In addition, Mao Geping Cosmetics recently acquired a plot of land near the Wujiang Road subway station in Hangzhou, adjacent to K11, for nearly 600 million yuan ($83.9 million). According to the investment and development agreement for the Wanjian plot, the winning bidder is required to use 50% of the land for the construction of a national headquarters (cosmetics research and sales) project, with a minimum annual revenue of 2 billion yuan ($279.7 million) and annual tax revenue of no less than 400 million yuan ($55.93 million) during the evaluation period of five years.
Furthermore, Mao Geping Cosmetics has strengthened its industrial chain construction through the acquisition of contract manufacturing factories. In October of last year, Mao Geping Cosmetics’ wholly-owned subsidiary, Hangzhou Xingyi, became the third-largest shareholder of Huameikangyan (Suzhou) Biotechnology Co., Ltd. through the acquisition of equity. It is reported that Huameikangyan was founded by the former CEO of Young Living China, and Mao Geping Cosmetics’ recognition of the company’s research direction may be a reason for the investment.
Through these series of actions, it can be seen that Mao Geping Cosmetics is striving to overcome the label of being “marketing-focused and research and development-light” and is actively promoting the strengthening of its previously weak research and development segment. As an industry insider said, “In the past year, Mao Geping Cosmetics’ actions can be seen as a response to the questioning voices. Once the research and development sector is improved, the company is bound to experience even greater development.”
Chinese cosmetics brands are increasing their investment in R&D
This trend is driven by the fact that R&D innovation in the cosmetics industry is an important direction supported by national policies. For example, Article 9 of Chapter 1 of the Cosmetics Supervision Regulations explicitly states that “the country encourages and supports cosmetic research and innovation. The legitimate rights and interests of national protection units and individuals engaged in cosmetic research and innovation are protected.”
With major companies increasing their R&D investment, the second half battle of Chinese cosmetics brands has begun. Looking at the brands that have already gone public, many beauty conglomerates have shown an increasing trend in R&D expenditure and the proportion of R&D. For instance, in the first nine months of 2023, Proya exceeds its R&D expenses to the full-year amount of 128 million yuan ($17.9 million) in 2022. R&D expenses of Botanee for the first three quarters of 2023 increased by 43.88% compared to the same period in 2022, reaching 182 million yuan ($25.45 million). Yatsen achieved its R&D investment in the first three quarters of 2023 reaching 24.7 million yuan ($3.45 million), and the R&D expense ratio increased from 3.0% in the second quarter to 3.4%.
Meanwhile, many beauty companies and brands are strengthening their R&D capabilities by establishing their own laboratories. For example, in May 2022, the CMF Laboratory, owned by the parent company of Yige Group, was officially put into use, further solidifying the “Oriental Beauty System.” In the same year, Yatsen reached a cooperative agreement with Zhongda University to expand the boundaries of Open Lab collaborative research and development. In addition, emerging Chinese brands such as Simpcare, Zhiben, and UNISKIN have all established their own R&D laboratories, effectively enhancing their brand’s research and development capabilities.
Furthermore, talent is fundamental to achieving technological and product innovation. In recent years, more and more Chinese cosmetics brands have begun to attach importance to talent. For example, in early 2022, Li Huiliang, known as the “first person in Chinese cosmetics R&D,” joined Yige Group as the Chief Scientist. In August, PMPM brand brought Sun Peiwen, Li Jinhua, and Liao Feng on board as their Chief Research Officer, Chief Formulation Scientist, and Research and Development Partner, respectively. In September of the same year, Proya and S’Young appointed Wei Xiaolan and Chen Jian as the Chief Scientific Officers. Moreover, Uniasia recruited two doctors within a year in 2022. One is Jianwen Mao, who previously served as Vice President of Asia Pacific at BASF, and the other is Zhi Pan, former Chief Scientist at L’Oréal’s North America Research Center and an expert in skincare and skin regeneration.
Overall, the increase in R&D investment, establishment of laboratories, and global recruitment of excellent researchers by Chinese cosmetics brands indicate their awakening and their aim to strengthen scientific research and innovation. This will help them build stronger and broader corporate and brand barriers, paving the way for a more competitive global stage. It is foreseeable that with a solid R&D foundation, domestic cosmetics brands will not only bring more high-quality products to the market but also expand their presence globally.
