3Q26 revenue beat; share-gain spend crimps earnings beyond expectations

　　珀莱雅(603605)

　　Proya’s 3Q26 revenue rose 29.8% YoY to RMB2,253mn, well above ourexpectations. However, recurring attributable NP fell 65.2% YoY to RMB79mn,below our expectations, due to trimmed GPM and rising selling ratio.FlowerKnows consolidation and rapid growth in emerging brands reinforced thebroader portfolio’s contribution to sales. The Ruby Cream 4.0 launch and Douyinexpansion also lay the groundwork for future growth, although heavierinvestment and a lower gross margin from shifting brand and category mixweighed on near-term profitability. The group’s growth drivers are broadening,and the early Double 11 performance indicates that investment in 3Q26 isstarting to pay off. We maintain BUY and retain our earnings forecasts and TPof RMB89.58, based on a target P/E of 30x.

　　The broader portfolio supported sales. 1) Established brands areshowing signs of improvement: Proya’s 3Q26 revenue fell by single digitsYoY, dropping its share of group revenue below 50%. Management reportedstrong Double 11 presales for Ruby Cream 4.0 (>1mn units) and the Yunbaiseries (>RMB100mn), which could help stabilize flagship-brand sales.TIMAGE’s YoY decline narrowed to single digits in 3Q26. 2) Emergingbrands maintained strong momentum: OR (>50% YoY in 9M26), AwakenSeeds (+103.5% YoY in 1H26) and INSBAHA (>100% YoY in 9M26).

　　A more balanced channel mix highlights omnichannel strengths. Thegroup’s channel mix became more balanced in 9M26, as offline revenuegrew by high double digits YoY and accounted for a larger share of totalrevenue. Among online platforms, Douyin’s contribution to flagship-brandrevenue surpassed Tmall’s (30%+ v.s. 25%+). Proya remains an industryleader in omnichannel execution.

　　Lower GPM and heavier selling expenses squeezed core profitability.GPM fell 4.9ppts YoY to 69.8% in 3Q26 on lower margin of FlowerKnows,higher offline contribution and changes in brand and category mix. Theselling ratio rose 3.5ppts YoY to 53.4%, driven by Ruby Cream 4.0 launchspending, investment in emerging brands, and higher traffic costs andspending on Douyin. Recurring NPM fell 9.6ppts YoY to 3.5%, suggesting anear-term focus on market share over profitability.

　　Valuation: We maintain BUY and retain our TP of RMB89.58, based on anunchanged target P/E of 30x. Despite a larger-than-expected decline in3Q26 recurring NP, we maintain our full-year forecasts for now, supportedby greater earnings contribution in 4Q and the solid start to Double 11.Risks: slower-than-expected core-brand recovery, traffic-cost hike, andweaker-than-expected earnings contributions from emerging brands.