1H26 earnings boosted by one-off gain; organic momentum still soft
珀莱雅(603605)
Proya's 1H26 revenue was broadly flat at RMB5,375mn (+0.2% YoY), whileattributable NP rose 46% YoY to RMB1,168mn. The increase was due to a oneoff investment gain of RMB445mn on the step-up of consolidation ofFlowerKnows (花知晓). Excluding the one-off gain, recurring NP fell 14% YoYto RMB664mn, with underlying net margin down to 13.9% from 15.4% in 1H25.Declining flagship-brand sales and a higher selling-expense ratio suggest thecore business is still bottoming. We maintain our BUY rating and keep our 30xtarget P/E multiple unchanged, yet cut our TP by 31% to HK$89.58, mainly aswe switch to recurring core EPS to remove one-off distortions and roll over ourvaluation base year to 2026E.
Soft top line and rising online traffic costs dampen organicprofitability. In 1H26, Proya brand and TIMAGE, accounting for nearly 80%of revenue, fell 7% and 22% YoY, respectively. Group revenue held flat onlyon fast-growing but sub-scale brands (OR +71%, INSBAHA +222%). Grossmargin lifted 0.9ppts YoY to 74.3% on dual sourcing, but the selling-expenseratio rose 3.5ppts to 53.1% on a higher mix of high-spend incubation brandsand rising Douyin traffic costs. Compounded by a 1.1ppt rise in the adminexpense ratio, core net margin fell 2.0ppts YoY, and organic profitability hasyet to trough. In the near term, a flagship recovery depends on delivery ofthe Ruby Cream 4.0 relaunch and the September upgrade of the Yuanliseries, in our view.
FlowerKnows: strategic value beyond the one-off gain. Postconsolidation, the group's online make-up share ranks behind only L'Oréaland Estée Lauder, widening its lead over domestic peers. As Proya's firstcontrolling acquisition, the deal also adds previously untested M&A and postdeal integration capability. We view M&A as the necessary route for singlebrand-reliant Chinese beauty companies to evolve into international multibrand groups — a path on which Proya is among the front-runners. Longerterm, smooth integration and portfolio build-out could support a valuation rerating toward multi-brand groups level.
Valuation. We maintain BUY and keep our 30x target P/E multipleunchanged, but cut our TP by 31% to HK$89.58, on 1) switching of theearnings anchor from attributable to recurring core EPS, removing large nonrecurring items such as consolidation gain so that valuation tracks thecompany's organic earnings power, 2)roll-over of the valuation base year to2026E; . The stock trades at 20x 2026E P/E, with the payout ratio at around50%. Risks: slower core-brand recovery, traffic-cost hike, and weaker-thanexpected integration of acquired brands etc.
