Eternal Beauty Wafts Towards Hong Kong Listing

Key Takeaways:

• Eternal Beauty’s revenues rose nearly 10% last year to 1.86 billion yuan
• The company manages 63 perfume brands, including many of the big names in the global fragrance industry 　

By Lau Chi Hang

Eternal Beauty Holdings Ltd. is hoping investors will pay through the nose for a share of its fancy fragrance business.

The company manages a portfolio of high-end perfumes and beauty products in China, selling through retail stores, online malls and social media channels. Aromatic products such as perfumes and scent diffusers have spawned a thriving “olfactory economy” in China, promoted by influencers and lifestyle bloggers as a way of enhancing personal well-being.

Pointing to studies linking the sense of smell to emotion and memory, perfume retailers have found a willing market in young and middle-income consumers. 

Eternal Beauty, a brand manager for international perfumes, now scents an opportunity to expand its presence by raising capital on the stock market.

The company filed this month to list on the Hong Kong Stock Exchange, saying it was well-placed to benefit from further expansion in the Chinese fragrance market. The company said the IPO funds would be used to upgrade its systems, raise the group’s profile and support growth.

Since its launch in 1980, Eternal Beauty has built a large portfolio of brands from perfumes to cosmetics, skincare, eyewear and home fragrances, which it places and promotes in the Chinese market.

Sniffing out an opportunity

Founder Lau Kui Wing set up a branch office in mainland China in 1987 to introduce international perfumes to domestic consumers. As the Chinese economy expanded, demand for perfumery and other aspirational products took off. The company grew to encompass more than 7,500 retail outlets in over 400 cities in mainland China, Hong Kong and Macau. With the arrival of the internet, it also began promoting its product range through e-commerce platforms and social media channels.

Eternal Beauty now manages 63 brands, including Hermès, Van Cleef & Arpels, Chopard, Albion and Laura Mercier. The company also sells under its own Santa Monica label, starting with eyewear in 1999 and adding five perfumes in 2022.

The company designs and implements customized plans for brands to target Chinese consumers, through its channels and distribution networks on the mainland, Hong Kong and Macau. The services include product selection, sourcing, inventory controls, logistics, warehousing, marketing and customer relationship management.

The company’s revenues have been rising steadily for the past three fiscal years, from nearly 1.68 billion yuan ($230 million) in the period to end-March 2022 to 1.7 billion yuan and 1.86 billion yuan in the following two years. Annual profits came in at 171 million yuan, 173 million yuan and 206 million yuan over the same period. Earnings grew despite a growing trend for consumers to downgrade their spending as the Chinese economy struggles to get back into high gear. Eternal Beauty said its business rebounded after the pandemic, indicating some resilience to the economic slowdown.

Further to grow

China’s fragrance market could still have plenty of room to grow, driven by demand from young consumers who place a high value on self-care and pleasurable experiences. According to a Frost & Sullivan report, per capita spending on perfume in China was just 16 yuan in 2023, lagging far behind the average outlay in Japan, South Korea, the United States and the United Kingdom. But per capita perfume spending was expected to grow at a compound annual growth rate (CAGR) of 14% in the five years to 2028.

The research found perfume sales in mainland China, Hong Kong and Macau jumped from 14.6 billion yuan in 2018 to 26.1 billion yuan in 2023, representing a CAGR of around 12.3%. The report predicted the market would grow at a CAGR of 12.8% to reach 47.7 billion yuan in 2028.

Smelling success

With a market share of about 8.1%, Eternal Beauty was the fourth-largest perfume group in China by retail sales in 2023, behind three French firms that own their own brands. The company ranks first in China for perfume brand management, with seven of its portfolio products among the top 30 best-selling fragrances. As such, Eternal Beauty looks well-positioned to benefit from potential growth of the Chinese market going forward.

Global fragrance companies have been keen to break into the vast Chinese market for a long time, but they can struggle with issues such as cultural differences, market regulations and a lack of an extensive sales network. Even brands that have gained a foothold in major cities may need on-the-ground expertise to expand into second- and third-tier markets. In such cases, a brand management company with local knowledge, such as Eternal Beauty, could help generate the sweet smell of success.

Eternal Beauty has few direct peers for market comparisons. Beauty-related stocks have been under pressure recently, with investors worried about the impact of buyers switching to cheaper products and services. Even with the potential for a growing market, Eternal Beauty could struggle to score a big valuation in the current climate. Using cosmetics retailer Sa Sa International (0178.HK) as a benchmark, with a price-to-earnings(P/E) ratio of 10 times, Eternal Beauty would be worth around HK$2.5 billion.

This article is from an unpaid external contributor. It does not represent Benzinga's reporting and has not been edited for content or accuracy.