US Stock IPO Outlook | Hong Kong Beauty Products Retailer Pitanium: Net Profit Decreased by 13% Year-on-Year, Industry Recovery ≠ Strong Performance

Looking at the development of the beauty and personal care retail sector in Hong Kong over the past few years, the two key words "fluctuation" and "recovery" can be said to run through it all.

Affected by the pandemic, the sales of the beauty and personal care market in Hong Kong declined in 2020 and 2021, but gradually recovered after 2022. According to data from the Hong Kong Census and Statistics Department, retail sales of cosmetics and personal care products increased by about 15% year-on-year in 2023, indicating a rebound in consumer confidence.

However, the rebound in consumer confidence may not necessarily mean that related companies can also achieve a "performance recovery."

On February 14, Hong Kong beauty and consumer goods retailer Pitanium submitted its initial public offering (IPO) application to the U.S. Securities and Exchange Commission. The company plans to issue 1.8 million shares at a price of $4 to $5 per share, raising $8 million. Based on the midpoint of the proposed price range, Pitanium's market value will reach $102 million.

Founded in 2013, the company primarily sells skincare, personal care, and hair care products under the PITANIUM and BIG PI brands, mainly through six retail stores in Hong Kong and online sales.

As mentioned above, Pitanium's entry into the secondary market also exposes the underlying pain points in the company's operational performance.

Net Profit Decline, Liquidity "Under Pressure"

According to Zhitong Finance APP, Pitanium's brand "PITANIUM" was launched in 2019, initially providing high-end skincare and hair care solutions for Hong Kong spas. The brand "BIG PI" was launched in 2023, offering a complete set of products to retail customers with different product formulations.

The company's skincare revenue mainly includes facial care products such as serums, cleansers, masks, and toners; hair care revenue mainly includes shampoos, conditioners, hair treatments, and hair masks; cosmetics revenue mainly includes sales of foundation, setting powder, eyeliner, mascara, and lipstick; other product revenue mainly includes sales of deodorants, makeup removers, exfoliating oils, as well as health products, laundry detergents, and dishwashing liquids.

According to the prospectus data, as of September 30, 2023, and September 30, 2024, the company achieved revenues of HKD 68.1969 million and HKD 74.9304 million, respectively, a year-on-year increase of 9.87%. In contrast, the company's net profit is in decline, with net profits of HKD 10.2554 million and HKD 8.8963 million during the period, a year-on-year decline of 13.25%.

During the reporting period, Pitanium significantly increased its marketing and promotional expenses to enhance consumer awareness of its brand, thereby generating more sales. For the fiscal year ending September 30, 2024, the company's total sales and marketing expenses amounted to HKD 11.7978 million, a year-on-year increase of 13.31%, which may also be a major reason for compressing the company's profit capacity.

It is worth noting that the pressure of declining profitability has clearly transmitted to the company's liquidity According to the prospectus, as of September 30, 2024, Pitanium holds cash of HKD 16.9645 million, a decrease of 10.59% compared to the same period in 2023. During this period, the company's total current assets amounted to HKD 25.7311 million, while total current liabilities reached HKD 22.2678 million, indicating significant short-term liquidity pressure.

Based on this, it can be seen that even though consumer confidence in Hong Kong's beauty and personal care retail sector is recovering, Pitanium's decline in net profit and tight liquidity clearly reveal the underlying pain of the company's poor performance.

Industry Gradually Recovers, Internal Operational Shortcomings Await Resolution

The retail sector has always been a key industry in Hong Kong, contributing over 3% to the overall GDP in the past five years.

In 2023, the online retail sales of beauty and personal care products reached HKD 2.7169 billion, with a compound annual growth rate of 13.6% from 2018 to 2023, thanks to the emergence of direct-to-consumer and marketplace platforms in the early 2010s. It is expected that the market will reach HKD 3.4198 billion by 2028, with a compound annual growth rate of 8.9% from 2024 to 2028.

In contrast, the offline retail sales of beauty and personal care products in Hong Kong declined from HKD 33.2321 billion in 2018 to HKD 19.4206 billion in 2023, with a compound growth rate of -10.2%. The decline in 2019 and 2020 was attributed to a decrease in tourist numbers and the closure of offline retail stores due to the pandemic. With the reopening of borders and the recovery of the tourism industry, offline retail sales of beauty and personal care products in Hong Kong rose from HKD 13.0592 billion in 2022 to HKD 19.4206 billion in 2023. In line with the overall retail market, the outlook for offline retail sales of beauty and personal care products in Hong Kong remains optimistic, expected to reach HKD 26.5700 billion by 2028, with a compound growth rate of 6.0% from 2024 to 2028.

(Source: Pitanium Prospectus)

Within this, the Hong Kong beauty and personal care products market also shows two major trends: first, consumers are increasingly inclined towards high-end, functionally segmented (such as anti-allergy, natural ingredients) and convenient products (such as travel-sized items, online shopping). Second, KOL marketing and social media (Instagram, Xiaohongshu) are having an increasingly significant impact on purchasing decisions.

In addition, the beauty and personal care products market in Hong Kong is also highly fragmented. In 2023, there were approximately 5,000 brands, which can be divided into two main categories based on their operational coverage: large multinational companies and local small to medium-sized brands. In 2024, Pitanium, along with two other leading companies in the Hong Kong beauty and personal care products industry, accounted for only 0.04% of the total retail value of beauty and personal care products in Hong Kong In light of the above, it is not difficult to see that under the dual influence of external factors and internal shortcomings, Pitanium's performance not being able to "warm up" with the industry seems to be no coincidence.

Specifically, Pitanium currently has certain internal operational shortcomings: on one hand, the company's product structure has aged, while local consumers' attention to health, sustainability (such as Clean Beauty), and personalized products has increased. If Pitanium fails to timely launch segmented categories that align with trends (such as Clean Beauty and men's skincare), it may lose favor with younger consumers. On the other hand, the company's channel strategy has also become rigid, with high offline store rents but insufficient sales per unit area, and a lag in online transformation (such as a lack of live e-commerce layout and user experience not matching DTC brands).

It is worth mentioning that although Pitanium's profit decline is the result of both external shocks and internal capability deficiencies, its core competitiveness still holds the potential for reshaping. According to Zhitong Finance APP, the key lies in its ability to clearly define a differentiated positioning to avoid generic competition; accelerate digitalization and omnichannel integration to reduce operational costs; bind local culture with sustainability trends to build emotional recognition. Additionally, if it can form a closed loop in product innovation, scenario experience, and membership operations, it may regain market initiative.

Pitanium is clearly aware of the above growth points—its prospectus discloses the company's future growth strategy, planning to develop its business by upgrading its existing operations in Hong Kong and expand into markets outside of Hong Kong through the following business strategies: planning to enhance customer experience by launching a mobile application; developing a new product line specifically for home treatments; expanding its product portfolio and exploring new suppliers. Furthermore, the company plans to further strengthen its marketing strategy.

In summary, under the dual influence of external factors and internal shortcomings, Pitanium's intention to enter the secondary market is evident. Whether the company can leverage its growth strategy to turn around the unfavorable situation remains to be seen over time