Buy Yatsen Holding Below Net Cash Value With Early Signs Of Turnaround

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Yatsen Holding Limited was a highly successful Chinese beauty products company but experienced a dramatic decline in sales and stock price.YSG has implemented a strategic transformation plan to adjust...

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}\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nBuy Yatsen Holding Below Net Cash Value With Early Signs Of Turnaround\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-04-01 20:33 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4681460-buy-yatsen-holdings-below-net-cash-value-with-early-signs-of-turnaround><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Yatsen Holding Limited was a highly successful Chinese beauty products company but experienced a dramatic decline in sales and stock price.YSG has implemented a strategic transformation plan to adjust...</p>\n\n<a href=\"https://seekingalpha.com/article/4681460-buy-yatsen-holdings-below-net-cash-value-with-early-signs-of-turnaround\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"BK6100","symbol_name":"保健护理服务","start_time":0,"source_url":"https://seekingalpha.com/article/4681460-buy-yatsen-holdings-below-net-cash-value-with-early-signs-of-turnaround","article_id":"2424719325","we_media_id":null,"thumbnails":[],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2424719325","pubTimestamp":1711974802,"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"Yatsen Holding Limited was a highly successful Chinese beauty products company but experienced a dramatic decline in sales and stock price.YSG has implemented a strategic transformation plan to adjust","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"BK6100":"保健护理服务","BK6027":"贸易公司与经销商","NPL.SI":"新加坡阅肤有限公司","BK4505":"高瓴资本持仓","5OX.SI":"谢美丽","YSG":"逸仙电商","N32.SI":"利百","BK4183":"个人用品","BK6502":"个人家庭产品与服务概念","BK6097":"特殊消费者服务"},"translate_title":"在出现早期好转迹象的情况下，以低于净现金价值的价格买入Yatsen Holding","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"YSG":1,"5OX.SI":0.9,"N32.SI":0.85,"NPL.SI":0.85},"content_text":"Yatsen Holding Limited was a highly successful Chinese beauty products company but experienced a dramatic decline in sales and stock price.YSG has implemented a strategic transformation plan to adjust its revenue mix, increase skincare brands, and cut costs.The progress of the transformation is encouraging, with revenue growth and increased gross margins, but the company still faces risks and liquidity constraints.   Uzair Irfan/iStock via Getty Images Investment Thesis Yatsen Holding Limited (NYSE:YSG) is a leading Chinese beauty products company. YSG was one of the hottest Chinese IPOs in 2020 with high profile cornerstone investors such as Hillhouse Capital and Gaorong Capital. The Company grew exponentially from its founding in 2016 to 2020. Unfortunately, its disruptive digital-first, data-driven business model proved to be unsustainable. YSG’s sale peaked in Q3 of 2021 and started to plummet from Q4 of 2021. Meanwhile, its loss widened dramatically. Accordingly, investors have dumped YSG’s shares as YSG's stock price has fallen more than 98% from its speak in 2021. However, since 2022 YSG has taken a series of steps to get the business back to growth. The Company has also announced a meaningful share repurchase program. I think YSG’s share offers huge upside with limited downside as it is trading below net cash value. Therefore, I am giving YSG a “buy” rating.  YSG’s initial huge success According to the company’s website, YSG was founded in 2016, since then it has launched and acquired numerous color cosmetics and skincare brands including Perfect Diary, Abby's Choice, Galénic, Eve Lom, and DR.WU’s mainland China business. The Company claims that its \"flagship brand, Perfect Diary, is one of the leading color cosmetics brands in China in terms of retail sales value and it primarily reaches and engages with customers directly both online and offline, with expansive presence across all major e-commerce, social and content platforms in China.\" YSG was founded at the right place at the right time. In 2016, China’s e-commerce market was still growing very rapidly and live-streaming platforms such as Kuaishou and ByteDance’s Douyin had just started to take off. Both e-commerce and live-streaming platforms were important new market channels for cosmetics and skincare brands. YSG’s founder, Jinfeng Huang, invented a new and disruptive business model. Unlike traditional cosmetics and skincare brands which rely heavily on off-line retail stores, YSG uses data collected from e-commerce and social media platforms to launch and test new products. Furthermore, YSG partnered with ODM/OEM and packaging suppliers to quickly produce new products at significant volumes in a cost-effective manner. According to YSG’s IPO prospectus, YSG’s supply chain product development process enables YSG to launch a product in “less than six months, much lower than the seven to 18 months that international brands typically need for new product development.“ Another aspect of YSG’s disruptive business model is its DTC (direct-to-consumer) channel. YSG’s prospectus states that “our DTC approach ultimately allows us to establish direct long-term relationships that maximize brand loyalty and customer engagement. It allows us to provide greater value to customers through direct control of product pricing and distribution. Our business model reduces the need for third-party distributors, who, according to the CIC Report, typically charge approximately half of the profitability that a consumer brand typically receives.” Up until 2020, YSG’s disruptive approach was hugely successful. According to the IPO prospectus, YSG’s gross sales for FY 2019 \"increased 363.7%, or roughly 30 times the growth rate of the broader China beauty industry in terms of retail sales value.\" For the first nine months of 2020, its \"gross sales increased 70.2%, or roughly 16 times the growth rate of the broader China beauty industry in terms of retail sales value over the same time period. Additionally, Perfect Diary was the only color cosmetics brand to achieve over RMB100 million in GMV on Tmall in every month of 2019 and the nine months ended September 30, 2020.”  Furthermore, it was reported that “in just three years, Yatsen's first brand, Perfect Diary, which accounts for 98.3% of Yatsen's 2019 gross sales, has leapfrogged established international rivals like L'Oreal Group's Maybelline New York and Estee Lauder's MAC to become China's top makeup brand, according to research firm Kantar Worldpanel.” YSG’s dramatic decline Unfortunately, YSG’s IPO almost coincided with its peak business performance. After years of rapid growth, China’s color cosmetics market started to decelerate in 2020 and then experienced low growth in the second half of 2021. Then in 2022, China’s beauty and personal care market declined 6.4%, the first annual decline since 2017, as reported by Euromonitor International. Meanwhile, competition also intensified in China among domestic and global players.  The impact of declining domestic demand and intensified competition started to show up in YSG’s financial performance in Q4 of 2021 when YSG’s total net revenue declined by 22.1% year-over-year. Starting from Q4 of 2021, YSG experienced a brutal revenue decline of eight consecutive quarters.   Seeking Alpha YSG’s transformation YSG’s founder Jinfeng Huang recognized very early that its business model was not sustainable. Starting from Q1 of 2022, YSG has embarked upon a 5-year strategic transformation plan, which includes adjusting the revenue mix by increasing contribution of skincare brands, fine-tuning color cosmetics channel and product mix, expanding 3rd party distribution, investing in R&D, and cost cutting. Management explained the transformational plan in details during the Q4 2022 earnings call.  Key to YSG’s transformation is the increasing revenue contribution from YSG’s skincare brands, most of which YSG acquired after its IPO. For instance, in November 2020, YSG acquired premium French skincare brand Galenic. In January 2021, YSG acquired the Taiwanese premium skincare brand Dr.WU’s mainland China business. In March 2021, YSG acquired the UK-based premium skincare brand Eve Lom.  The reason why YSG put so much emphasis on the skincare brands is because compared to YSG’s own brands such as Perfect Diary, these acquired brands are all established premium brands with great reputation. These brands also have higher gross margins than YSG’s own color cosmetics brands. In a sense, YSG is trying to disrupt itself by transforming into a more traditional beauty and cosmetics business.  The progress of revenue mix adjustment is encouraging. YSG announced that for Q4 of 2023, the company has returned to growth trajectory with revenue growth of 6.8% driven by fast growth of the Skincare brands. Specifically, \"total net revenues from Skincare Brands for the fourth quarter of 2023 increased by 17.6% year-over-year.\" As a percentage of total net revenues, total net revenues from Skincare Brands for the fourth quarter of 2023 increased to 51.7% from 46.9% for Q4 2022, and 21.7% for Q4 2011. For FY 2023, \"total net revenues from Skincare Brands increased by 11.4%\". As a percentage of total net revenues, total net revenues from Skincare Brands increased to 40.5% from 33.5% for FY2022, and 14.6% for FY2021. Consequently, gross margin for Q4 2023 was 73.7%, up from 71.1% for Q4 2022. Gross margin for FY 2023 was 73.6%, up from 68.0% for FY 2022.  Whether YSG can continue Q4’s growth momentum remains to be seen. However, for the first quarter of 2024, the Company expects its total net revenues to increase 0-5%. Balance sheet and cash flow According to YSG's Q4 2023 earnings release, as of December 31, 2023, YSG had cash, restricted cash and short-term investments of RMB2.08 billion ($292.5 million), a decrease of RMB 0.55 billion from December 31, 2022. Net cash used in operating activities for the full year of 2023 was RMB107.4 million ($15.1 million), as compared with net cash generated from operating activities of RMB136.2 million for FY 2022. Share repurchase program YSG’s initial $100 million share repurchase program was announced in November of 2021. In August of 2022, YSG increased the repurchase program from $100 million to $150 million. Most recently, along with YSG’s Q3 2023 earnings call, YSG’s announced that the Company’s Board of Directors approved and authorized to upsize its share repurchase program from $150 million to $200 million and expand the effective term of the share repurchase program through November 19, 2025. However, for some reason the Company did not provide an update on the share repurchase progress during Q4 2024’s earnings call.  Valuation When it comes to YSG’s valuation, I have applied a TTM P/S multiple of 0.65 times, which is 50% of the sector median of 1.3 times. This discount reflects the fact that YSG is a thinly-traded Chinese ADR and thus, potentially carrying additional risks and liquidity constraints. The discount also reflects the fact that YSG is still in the process of turnaround.    author's estimate At today’s valuations, YSG is trading below its net cash value of $290 million as well as my fair value estimate of more than $310 million. Risks to consider The primary risk YSG faces is slower-than-expected transformation progress due to China’s challenging macro-economic conditions, intensified competition in China’s beauty and cosmetics market, or the Company’s own missteps.  A secondary concern for YSG is the frequent change of management team. In 2021, two of the Company’s co-founders resigned. Moreover, YSG’s CTO resigned in March of 2023. Any further change with management team may adversely impact YSG’s turnaround efforts.  Lastly, YSG faces significant liquidity risks due to its extremely low trading volume. Also, as a Chinese ADR, YSG is also subject to increased volatility, which could further impact its liquidity. Conclusion  YSG went through a dramatic rise and fall in its short history. As YSG made progress with its business transformation, it has returned to growth trajectory. However, YSG’s stock is trading at a significant discount to net cash value and my fair value estimate due to investors’ lack of interest. Therefore, I am assigning YSG a “buy” rating.","kind":null,"is_publish_news":null,"is_publish_highlight":null,"is_publish_live":null,"is_publish_wemedia":null,"editions":null,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.22.4","shortVersion":"4.22.4","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2424719325"}