德银中国医疗保健行业中国家庭个人护理未来很美好20194254页

2April2019HouseholdPersonalCareChinaConsumerStaplesHouseholdPersonalCareIndustryUpdateAsiaEuropeGlobalNorthAmericaIndustryChinaDate2April2019DeutscheBankResearchTheFutureisBeauty-FullCanChinakeepgrowing?Yesitcan!Overthelasttwoyears,organictop-linegrowthformanyoftheworld'stopglobalbeautycompanieshasacceleratedstrongly1,propellinganumberofstockstowardsnewall-timehighs,includingEstéeLauder,L'Oréal,LVMH,andP&G.Andbehindthisgrowthhasbeenasingle,commondriver:demandfromChineseconsumers,bothathomeandwhiletravelingabroad.Now,thequestionspersist:Cansuchgrowthbelapped,andforhowlongcanrecentelevatedmomentumbemaintained?HowsustainableisrecentgrowthinChina?Asdiscussedinthisreport,ourviewisthattherunwayforelevatedbeautygrowthinChinaremainslong(especiallyforprestige/premiumofferings).Demographics,consumerpreferences,andper-capitaspendinghabitsareallfavorable,andtechnology(i.e.,e-commerce/m-commerce)shouldfacilitaterapidmarketdevelopment.Ofcourse,suchoptimismmustbebalanced(tempered?)againsttherealityoftoughcomps,slowingeconomicgrowth,mountingtariffconcerns,andrisingoversightonChineseconsumerswhobuygoodsoffshoreinordertosellthemdomestically(daigou)—nottomention(asafurtherpotentialhurdletoglobalplayers)risinglocalcompetitionandmadeinChina”increasinglybecomingasourceofprideforChinesebrands.Asaresult,whilewedoexpectsomeyear-on-yearslowinginChinaoverthenext12-18months,webelievesoliddouble-digitgrowthprospectsremainintactformostmajorplayers(again,especiallythosecompetingforhigh-enddemand).Whatfuelsourstructuraloptimism?Surveysays...Basedonaproprietarysurveyof700ChinesebeautyconsumersoverthecourseofJanuary/February,wefindlittleevidenceofadecelerationinbeautyspending(mirroringourcoveragecompanies'comments).Ingeneral,consumersareplanningtospendmore(over50%ofbothskincareandmakeupconsumerssaytheyplantoincreasetheirbeautyspendinggoingforward,vs.lessthan10%sayingtheyplantodecrease—with75+%ofconsumersunder-34sayingtheyplantospendmore),buyinganincreasingnumberandbroaderarrayofproducts(withmakeuprisinginpopularityalongsideskincare,andwithEvaQuiroga-ThieleResearchAnalyst+44-20-754-51886StevePowersResearchAnalyst+212-250-5480FaizaAlwyResearchAnalyst+1-212-250-7611LouiseLiResearchAssociate+852-22036152AnneLingResearchAnalyst+852-22036177FrancescaDiPasquantonioResearchAnalyst+44-20-754-564901Beiersdorf,EstéeLauder,L'OréalandP&GBeautyreported+6.6%organicgrowth,onaverage,forcalendar2017and2018—aclearstep-upfrom+3.3%forcalendar2014through2016.DeutscheBankAG/LondonDeutscheBankdoesandseekstodobusinesswithcompaniescoveredinitsresearchreports.Thus,investorsshouldbeawarethatthefirmmayhaveaconflictofinterestthatcouldaffecttheobjectivityofthisreport.Investorsshouldconsiderthisreportasonlyasinglefactorinmakingtheirinvestmentdecision.DISCLOSURESANDANALYSTCERTIFICATIONSARELOCATEDINAPPENDIX1.MCI(P)091/04/2018.THECONTENTMAYNOTBEDISTRIBUTEDINTHEPEOPLE'SREPUBLICOFCHINA(THEPRC)(EXCEPTINCOMPLIANCEWITHTHEAPPLICABLELAWSANDREGULATIONSOFPRC),EXCLUDINGSPECIALADMINISTRATIVEREGIONSOFHONGKONGANDMACAU.Distributedon:02/04/201906:07:07GMT7T2se3r0Ot6kwoPaDistributedon:02/04/201906:07:07GMT7T2se3r0Ot6kwoPa2April2019HouseholdPersonalCareChinayoungerconsumersusing,onaverage,sixdifferentbrandsineachproductsubcategory),generallybuyingmoreexpensiveproducts(75%ofmassmarketconsumersexpressanintenttotradeup,two-thirdsofthemtogloballuxurybrands),travelingmore(67%ofrespondentsexpecttotravelabroadthisyear),andshoppingmorewhiletheytravel(95%ofrespondentsplantobuyskincare/makeupproductsontheirtravels—~40%indutyfreechannelsonly,~10%indestinationend-marketsonly,andanother~40%spreadacrossdutyfreeandend-marketoutlets).Combinedwithsteadilyrisinghouseholdincomes(estimatesareforanine-foldincreaseintheChinesemiddleclassbetween2015and2030,withfemalespendingpowerexpectedtoincreaseexponentially)andever-easieraccesstopreviouslyhard-to-findbeautyproductsviae-commerce(e.g.,Tmall),thesetrendsspeaktoyearsofstructuralgrowthahead—notingthatconsumersinmarketsliketheUS,UK,Germany,France,Korea,andJapanstillspend~7xpercapitamoreonbeautyproductsthandotheirpeersinChina.Whoisbestpositioned?Figure1:CompaniesfeaturedNameTickerRatingLastPriceEsteeLauderELBuy$164.77L'OrealOR-FRHoldLVMHMC-FRHoldProcter&GamblePGHold$103.64BeiersdorfBEI-DEHoldUnileverULVR-GBBuy£43.55CotyCOTYHold$11.28HenkelHEN3-DEHoldSource:FactSet,DeutscheBankResearchOverall,weremainmostupbeatontheprospectsforEsteeLauder(Buy-rated).Weremainconstructive,butHold-ratedonotherglobalplayerssuchasLVMH,L'Oréal,P&G,andCoty.■EstéeLauder(Buy,$176PT):Asapure-playprestigeglobalbeautycompany,wearebullishonEL'sprospectsandexpecttoseetop-lineandbottom-lineupsidedrivenbycontinuedgrowthinChina,aninflectionintheUS,andwhitespaceopportunitiesinotheremergingmarkets.■L'Oreal(Hold,€230PT):AmongEuropeanHPCcompanies,L'OréalisbestpositionedtobenefitfromChinesegrowth,giventhesheerbreadthandqualityofitsbrandportfolio,althoughthisisreflectedinvaluation.■LVMH(Hold,€310PT):WhileLVMHPerfumes&Cosmeticsconsistsofanimpressiverangeofluxurybrands,thesegmentisthesmallestofLVMH’sfivedivisions.Whilemom