On track to synergize its R-D franchise, hero products and live-streaming distribution

CMB International Global Markets | Equity Research | Company Initiation PLEASE READ THE ANALYST CERTIFICATION AND IMPORTANT DISCLOSURES ON LAST PAGE MORE REPORTS FROM BLOOMBERG: RESP CMBR <GO> OR http://www.cmbi.com.hk China Consumer Staples – Household and Personal Care Joseph Wong (852) 3900 0838 josephwong@cmbi.com.hk Zheng Xiaohui zhengxiaohui@cmbi.com.hk Stock Data Mkt Cap (RMB mn) 44,238 Avg 3 mths t/o (RMB mn) 232.7 52w High/Low (RMB) 165.6/ 107.1 Total Issued Shares (mn) 281 Source: Bloomberg Shareholding Structure Hou Juncheng 34.7% HKSC 19.4% Fang Yuyou 18.1% Source: Bloomberg Share Performance Absolute Relative 1-mth 11.8% 5.5% 3-mth 26.5% 24.8% 6-mth 11.4% 25.8% Source: Bloomberg 12-mth Price Performance Source: Bloomberg 0.050.0100.0150.0200.0Jun-21Sep-21Dec-21Mar-22603605 CH SHSZ300 (rebased)(RMB)BUY (Initiation) Target Price RMB184 Up/Downside +17.5% Current Price RMB157 1 21 Jun 2022 With warehouse spreading across Hangzhou, Chengdu, Guangzhou and 85% of sales deriving from ecommerce platforms, Proya, in our view, is relatively less impacted by recent lockdowns in Shanghai and Beijing, and hence better earnings certainty for 2Q. On the other hand, the expense related to the recall for its sunblocker could have weighted on Proya’s 2Q performance. That said, considering a solid 618 sales momentum and a more controlled promotional expense (to intentionally buffer for the recall), we think Proya is on track to deliver a 2Q that is inline with its full year guidance. Longer term, we are convinced that Proya’s 1) hero product strategy, 2) deepening ecommerce platforms penetration, and 3) proprietary R&D capability, will not only enable the company to persistently manage through the pandemic cycles (as it has been since early 2020), but also serves as the winning combo to sustain market share gain. We project an industry-beating 26% 3-year revenue CAGR for 2021-24E, underpinned by 31% growth in its online business, along with a 1.3pp GPM expansion p.a. We initiate Proya with BUY. Proya is our top pick along with Botanee.  An irreplicable R&D capability as a strong backup of Proya’s marketing strategies. Proya sets up a new R&D center in Shanghai to gain better access to industry talents. The office will also be responsible for the research on new product formula and raw material experiments. Meanwhile, a research hub/ hair care centre will also be established in Japan for the “Off & Relax” brand over 2H22. We think Proya is on a right track to synergize its irreplicable R&D capability with its hero products (Ruby and Double Essence) as well as live-streaming distribution, and hence a self-sustaining tangle between the three.  Management guidance maintained despite the strict pandemic controls. Proya is still confident to achieve 20-30% top line growth with 40%+ growth from online business (implying offline to down by mid-teens). This comes with a similar net profit growth trajectory when a s