Original title: through the latest financial report, after reading the "qualitative change" of Yatsen (YSG.US), the parent company of Mei Diary, source: Tencent News

Yatsen (YSG.US), the parent company of perfect Diary, released its results for the second quarter of 2021 on Aug. 26.

Taken as a whole, there is no lack of bright spots in this financial report. During the reporting period, Yatsen's revenue grew steadily to 1.53 billion yuan, an increase of 53.5% over the same period last year, significantly leading the 18.5% growth rate of cosmetic retail sales and comparable companies in the same period. This is also the third consecutive quarter of year-on-year growth. At the same time, its Non-GAAP net loss rate fell both month-on-month and month-on-month, narrowing sharply to 12.8%; gross profit margin reached about 65.7%, rising continuously compared with the same period last year.

Research and development expenditure, which is necessary for Yatsen's long-term development, continues to double; the investment during the period is about 35.2 million yuan, an increase of 146.2% over the same period last year (about 14.3 million yuan), accounting for about 2.3% of the total revenue, which is higher than that of domestic comparable companies and close to international big-name cosmetic groups.

(source: Gronghui collation)

In addition, the proportion of Yatsen's Q2 marketing expenses to sales has further declined to 63.8% of the total consumer size of about 10.2 million, an increase of 13.3% over the same period last year (Q2 about 9 million in 2020). The quarterly unit price of DTC consumers is about 116.7 yuan per person, an increase of 17.6% over the same period last year (Q299 yuan per person in 2020).

And these also seem to mean that Yatsen's "R & D innovation + multi-brand + …" The combination of boxing began to work, and its business model, based on long-term doctrine, began to shift from a "quantitative change period" to a "qualitative change period". To put it simply, Yatsen has a high-quality income growth on the one hand and a gradual decline in costs on the other, which will undoubtedly lead to the improvement of profitability and enter the channel of healthy and sustainable development.

Below, also from two dimensions, to further analyze the reasons for the above positive changes, as well as sustainability.

1. Research and development to create exclusive "chips" to drive qualitative growth

First of all, it is clear that the core of the competition of cosmetics often lies in the upstream raw materials. In the long run, evergreen beauty brands are mostly international brands with patent components for protection, so patent components are regarded as "chips" for enterprise development, that is, long-term growth driven by research and development. For example, L'Or é al's trump card patent ingredient, Bose, makes it unique in the field of anti-aging. The repurchase rate of products such as black essence has been high for a long time, and the monthly sales of official flagship stores maintain 10, 000 +.

In April this year, during the secret exploration of Yixian OpenLab, relevant sources revealed that Yatsen already had more than 500 kinds of exclusive raw materials. In the second quarter, Yatsen also made a number of technological innovation and application achievements: jointly developed and landed a number of raw materials, including sulfamethoxy H, sulfamethoxy L, 377co-delivery nano-carrier pro, salicylic acid nano-encapsulated microcapsules and so on. Up to now, Yatsen has 84 patents worldwide, including 37 invention patents (some of which are in the process of being transferred).

For a cutting-edge beauty makeup group, it is undoubtedly rare to be able to reach such a scientific research reserve scale. As of the first half of the year, the industry company Huaxizi has a total of 47 patents; BettanyWith 50 valid patents in the territory, Yatsen's strength in scientific research is evident.

In addition, we have learned that Yixian OpenLab is an innovative open R & D system, which integrates the world's top partners such as raw materials, R & D and production, that is, upstream and downstream integration. In terms of product safety, the internal control standard of microbial colony is ≤ 100. the total number of bacterial colonies of skin care products can basically be less than 10, which is much higher than the global standard of bacterial colonies ≤ 1000 of skin care products. At the same time, Yatsen has also reached strategic cooperation with well-known institutions at home and abroad, such as the 3D skin Institute of the University of Lyon School of Medicine, Huazhong University of Science and Technology, and the French plant stem cell culture institution Naolys, committed to the innovative application of raw materials in various directions.

2. vertical and horizontal expansion, skin care products support upward expectations

Under the support of long-term R & D strength, Yatsen also opened a larger space for brand growth in the second quarter, and accelerated the expansion of skin care products with higher profit margins and composition requirements.

Vertically, after incubating the perfect diary of the main brand, Yatsen continued to build the brand matrix and achieved remarkable results during the period, with the continuous improvement of Wanzi Xinxuan and LittleOndine Odin ROI; the new brand PinkBear Pico Xiong entered a period of rapid growth, with a cumulative GMV exceeding 10 million yuan. Horizontally, take perfect Diary as an example, it continues to incubate popular products, launches more than 100000 star gift boxes and "suitcases", launches men's make-up and moisturizing skin care products in July, and begins to infiltrate into the male consumer market.

What is also noteworthy is that in the second quarter, Yatsen skin care products performed brightly, and the main brand perfect diary developed skin care products in the second quarter and made use of its large user base for cross-selling; in terms of new brands, Dr.Wu Dahl skin amygdalic acid essence 618 in Chinese mainland omni-channel sales increased by more than 7 times compared with the same period last year; Galenic France Kelanli VC essence listed on the market 24-hour sales exceeded 1 million, listed on the Tmall essence category Top1 Sales of EVELOM classic cleansing cream 50ml increased by 152% compared with the same period last year. Benefiting from this, Yatsen's revenue structure has also been optimized at the "quality" level. In the Q2 performance conference call, Yatsen revealed that Q2 skincare products accounted for more than 20% of sales.

This means that, based on multi-brand and multi-category expansion, Yatsen has formed multiple growth curves, while extending the value of each growth curve, skin care brands and categories are driving its profitability to improve significantly.

In contrast, according to searing knowledge, Chinese consumers contributed more than 20% of the global cosmetic market share in 2019. According to CIC, the Chinese cosmetic market is expanding at an average growth rate of 10%, and is expected to occupy nearly 1% of the global market share in 2025. Among them, the skin care market has maintained steady growth for a long time, and the Chinese market is expected to grow to a market space of US $51 billion in 2025, becoming the most potential segment. This has also laid a good foundation for the expansion of skin care brands and categories in the Chinese market.

(source: CICBlueLotus)

3. Conclusion

From the perspective of the capital market, as far as Chinese stocks are concerned, affected by a series of recent black swan events, it can be described as "survival in a gap". Short-and medium-term investor sentiment seems to have been seriously impacted, causing the plate to differentiate from the US stock market for a time. However, in the medium to long term, the fundamentals and internal logic of many enterprises have not changed significantly, and now they are beginning to show signs of warming up.

Moreover, the new consumer industry, which is still in the growth stage, has not been affected by the policy, and with the improvement of the follow-up market environment, it will undoubtedly give birth to new investment opportunities.

Yatsen as a cutting-edge national makeup leader, growth is constantly being verified, with in the second quarter, BaillieGifford (accompanied Tesla, Inc. for 7 years, a well-known long-term fund) significantly increased its holdings in Yatsen, holding 2.6 times in the first quarter. And as of press time, Yatsen's latest share price has reached US $4.81, falling into an ultra-low range. These indicate that there is a high probability that it will eventually usher in the opportunity of value return.