1、ab1 August 2025Global ResearchChina Cosmetics SectorTime to turn positive?We expect LSD to MSD sector growth for the next three yearsAs noted in our 6/18 comment and recent tour takeaways,YTD sector performance turned out better than expected.In H125,Chinas cosmetics market sales grew 3%YoY,up from-

2、3%in 2H24.Whats our view from here?We now expect:1)consumer sentiment toward premium brands to stabilise,leading us to raise our 2025 sector sales growth forecast by 1ppt;2)stable marketing costs;and 3)stable competitive landscape.We continue to expect:1)industry concentration to keep improving;and

3、2)local brands to gain further share,especially in the mass segment.We raise our 2025 industry growth forecast from 2%to 3%,mainly as premium brand sales outperformed our previous expectations.Chicmax remains our top pick.We also like Giant Biogene(Buy).Whats changed?Chinas cosmetics sector has suff

4、ered from consumer downtrading and rising business costs.Yet we now expect a stable business environment going forward:1)after 2-3 years of sales decline,intl premium brands returned to growth during 6/18 despite stable or decreased marketing investment,which we attribute to stabilising consumer sen

5、timent and favourable traffic policies for top brands.2)We expect marketing costs to gradually stabilise around current levels based on our observations of Tmall/Douyin policies and leading corporates focusing on profitability.3)We think rapid success of new brands and products looks increasingly un

6、likely as Douyin growth subsides,consumer confidence remains weak and marketing costs remain high.Whats not changed?1)Premiumisation looks unlikely to return as strongly as in the past decade,with consumer confidence 20%below the historical average.2)Local brands should continue to gain share,especi