Summary of Key Points
The leading domestic beauty brand in the Hong Kong stock market, Shanghai Meisheng Co., Ltd., experienced a disappointing performance in the first half of this year: revenue decreased by 8.5%-9.5%, and profits plummeted by over 76%, mainly due to the decline in sales of its core brand, Hanbu. Just a week before the earnings warning, the company spent 384 million yuan to acquire a 29% stake in the infant and toddler brand “Yiyue,” allowing its co-founder and celebrity, Zhang Ziyi, to cash out 305 million yuan, representing a return of over 130 times her initial investment in four years. On one hand, the profits of the core brand Hanbu are collapsing; on the other hand, the company is investing heavily in a “second growth strategy” and allowing a celebrity shareholder to exit at a high price. The market is questioning Shanghai Meisheng’s true intentions.
Detailed Analysis
1. Hanbu: Still the Best-Selling Brand, but Profits Eroded by High Traffic Costs
Hanbu is Shanghai Meisheng’s cash cow, accounting for 80% of total revenue last year (7.36 billion yuan). In the first half of this year, it still led the personal care category on Douyin in terms of gross merchandise value (GMV), but its profits have disappeared. Why? Simply put, the company spent more on maintaining its scale—specifically, on advertising and traffic—than it earned. This year, the beauty industry has seen a peak in traffic, and to maintain its leading position, it had to pay more for advertising. Financial reports show that Shanghai Meisheng’s sales expense ratio reached 58.4% last year (58 yuan out of every 100 yuan earned was spent on advertising and traffic). As the main brand, Hanbu’s expenses were even higher. This strategy of using short-term profits to secure long-term channel control came at the cost of reduced profits. However, the company has indicated that Hanbu’s revenue began to recover in July, which provides some comfort to the market.
2. Spending 384 Million Yuan on “Yiyue”: A Move to Diversify or a Cover for Concerns?
“Yiyue” is Shanghai Meisheng’s infant and toddler brand, which has grown rapidly, with revenue increasing from 152 million yuan in 2023 to 880 million yuan by 2025, nearly tripling in size and becoming the main contributor to the group’s revenue, accounting for 9.6%. After the acquisition, Shanghai Meisheng’s stake in “Yiyue” rose from 51% to 80%, aiming to firmly control this new growth channel. The controversy arises from the timing of the investment: while its core brand Hanbu is struggling, the company invested 384 million yuan in a brand that accounts for less than 10% of its total revenue, rather than focusing on revitalizing Hanbu. Moreover, the acquisition price of 1.335 billion yuan (at a price-earnings ratio of 10 times) was significantly higher than Zhang Ziyi’s initial investment of 2.3 million yuan, resulting in a 130-fold return for her. This move, especially with a celebrity shareholder exiting at a high price, raises questions about whether the company is using a new story to conceal underlying issues.
3. Zhang Ziyi’s 130-Fold Return vs. Small and Medium Shareholders’ Losses: Is It Fair?
Zhang Ziyi, through her significant investment in “Yiyue,” cashed out 305 million yuan, achieving a 130-fold return in four years while still holding 6% of the shares and continuing to serve as a spokesperson for the brand. However, small and medium shareholders have seen their stock price drop by 67% this year, and it fell another 22.77% on the day of the earnings warning. The issue is that the benefits of having a celebrity shareholder seem to primarily benefit the celebrity herself, while small and medium shareholders bear the risk of declining performance and watch the celebrity exit at a profit.
4. Profits Declining, Yet Dividends Are Still Paid and New Businesses Are Invested in: Is the Money Being Used Wisely?
In the first half of this year, Shanghai Meisheng not only spent 384 million yuan on acquisitions but also distributed 300 million yuan in dividends (compared to 500 million yuan in dividends for the entire last year). Would this money have been better used to support Hanbu? The company claims that the profit decline was due to increased investment in research and development and brand building (such as building a factory in Indonesia and hiring scientific research personnel), which are long-term investments with no immediate returns. The market wonders whether prioritizing dividends and acquiring new brands over strengthening its core business is a misplaced focus. Although the company has ample cash flow, using these funds to improve Hanbu’s products or efficiency could have helped stabilize its performance. This is a post-facto criticism, but it does highlight investors’ concerns.
5. Is There a Future for Shanghai Meisheng?
In the short term, the recovery of Hanbu is crucial, but the high cost of traffic means profits may continue to be under pressure. In the long term, the growth of “Yiyue” is promising, but it will take time to replace Hanbu’s 80% of revenue. The company’s efforts in Indonesia and research and development are positive, but results will take time to materialize. The key will lie in the mid-year report at the end of this month, which will reveal the impact of “temporary market factors” and the actual contribution of “Yiyue” to the company’s profits, as well as whether sales expenses have been reduced. Only then will it be clear whether Shanghai Meisheng is truly planning for the future or just making temporary adjustments.
Conclusion
Shanghai Meisheng’s dilemma stems from its reliance on a single brand and the disappearance of the traffic-driven growth model. Diversifying into new businesses is a good strategy, but investing in acquisitions and dividends rather than strengthening its core brand raises concerns among investors. The celebrity shareholder’s exit at a high price further erodes trust in the company. The future of Shanghai Meisheng depends on whether Hanbu can truly recover and whether “Yiyue” can grow rapidly enough to replace Hanbu’s revenue. After all, a company’s stock price cannot be sustained solely by attractive stories.