The sweet scent of success for Chinese cosmetics and perfume raw material suppliers as more go public
The Chinese cosmetics market is thriving, and it’s not only Chinese brands that are making their presence felt. Highly profitable suppliers, particularly perfume ingredient manufacturers, are getting listed and getting noticed.
In November 2020, Chinese company Yatsen that owns cosmetics brand Perfect Diary raised eyebrows for being the first Chinese cosmetics brand to list on the US stock market. Meanwhile, perfume ingredient manufacturer Bon Natural Life is poised to become the first Chinese company in its industry to list in the US. In preparation for listing on the Nasdaq, they submitted a registration statement to the United States Securities and Exchange Commission (SEC) in December 2020.
Founded in 2006, Bon Natural Life has production bases in the cities of Tongchuan and Weinan — both in Shaanxi province — and they produce plant-based perfume ingredients, supplements, and food additives. According to Chinese media, they also supply raw ingredients to P&G and Kao. In addition to supplying raw ingredients, they also engage in product manufacturing as an OEM and ODM and are also currently selling their own branded products that include drink mixes and shampoos.
Bon Natural Life has grown through riding the wave of the Chinese perfume market’s expansion. Its yearlong sales up to September 2019 was 16.39 million dollars, a 52.1% increase from the previous year. A breakdown of this per segment shows that fragrance chemical compounds accounted for 41.1%, health supplements accounted for 26.5%, and bioactive food ingredients were 32.4%. However, in 2020 they experienced a suspension of operations due to the spread of the coronavirus, causing their sales in the six-month period leading up to March 2020 to fall by 16.6% down to 7.15 million dollars.
Bon Natural Life’s corporate vision is to be “an innovator of natural ingredients and a supplier to the health industry” and over the past 14 years of initiatives have established four original technologies.
The first technology extracts and separates plant material and structurally modifies it. This allows the maximum extraction of the active components from raw materials and removes toxic components. The technique is applied in the extraction of salvia sclarea and stachyose. The second technology helps to better activate plant-extracted components. By using a technique that stabilizes molecules and increases water solubility, they can improve the functionality of plant-extracted components and reduce toxicity.
The third technology raises the safety of plant-extracted components by removing heavy metals, melted pesticide residue, and specific harmful components from the extracted components. Lastly is a formulation technology that heightens the functionality of plant-extracted components to their maximum capabilities.
This functional chemical compound research is the keystone technology used in the research and development of the ingredients they sell and acts as the foundation for their OEM and ODM businesses and their product development. Bon Natural Life has so far taken out 12 patents based on these technologies.
The company has made full use of these bio-manufacturing technologies to produce substances such as sclareol, sclareolide, and ambroxide, which are extracted from clary sage, to substitute for the rare ambergris, which is a type of aromatic essence produced in the body of sperm whales. In particular, their original technologies allow them to provide ambroxide cheaper than rival companies.
The funds that the company has obtained thanks to the stock market listing have not only accelerated their business growth and market expansion but have also allowed them to focus on their human microbiome business and to consider collaborations with major corporations. They additionally have plans to widen their sales network and strengthen their online functions.
A series of raw material makers list on the stock exchange
The success of a variety of material suppliers in China’s domestic cosmetics manufacturing industry has already led to three companies listing on China’s stock exchange in 2020, preceding Bon Natural Life’s listing.
COSMOS Chemical, which was founded in 2000, was listed on the Shenzhen Stock Exchange in July 2020. Their total sales in the third quarter of that year weren’t too good at 760 million yuan (US$125 million) — a 4.3% decrease from the same quarter of the previous year — but their aggregate market value reached 5.94 billion yuan (US$897.4 million). COSMOS Chemical owns production bases in Suqian city in Jiangsu province and Ma’anshan city in Anhui province where they produce active components for products such as sunscreens and synthetic perfumes. They supply materials to such companies as Beiersdorf, P&G, L’Oréal S.A. and Johnson & Johnson.
Anhui Hyea Aromas, founded in 2002, was also listed on the Shenzhen Stock Exchange in 2020 though in September. Their total sales in the third quarter of 2020 were 160 million yuan (US$23.9 million) — a 2.9% increase from the same quarter of the previous year — and their aggregate market value is 2.45 billion yuan (US$370 million). The company produces gamma-lactone and delta-lactone-type synthetic perfumes, and over 75% of their total output is exported overseas. Along with P&G, their customers include perfume manufacturers Firmenich and International Flavors & Fragrances, Inc.
The rush to list on the stock exchange continues into 2021
The rapid progress being made by suppliers hasn’t stopped in 2021. As of the time of writing, another three companies are on their way to being listed.
In December 2020, Hangzhou Grascent was accepted to be listed on “ChiNext”, a Shenzhen Stock Exchange subsidiary market for new companies that is being called the “Chinese Nasdaq”. Hangzhou Grascent produces acetyl cedrene, cedrol methyl ether, and Santalum album, of which they mainly supply as the raw materials for perfumed oil.
WANXiang was also accepted into ChiNext in January. The company produces methyl dihydrojasmonate and ethyl maltol and supplies them for perfumes, perfumed oils, and food additives. Similarly, Asia Aroma was accepted to be listed on the Shenzhen Stock Exchange in January. The company, which produces perfumes and refrigerants, supplies perfume ingredients to International Flavors & Fragrances as well as Givaudan.
This drive of Chinese companies, especially perfume ingredient manufacturers, to list on stock exchanges is likely due to increased demand caused by the sudden expansion of the perfume market in China and the increase of new cosmetics brands.
However, it’s uncertain as to whether these perfume ingredient manufacturers can maintain this momentum. As mentioned above, a large portion of many Chinese manufacturers’ sales are from overseas, but it’s been indicated that there’s still a gap in product quality between Chinese and overseas manufacturers. The perfume ingredients supplied by Chinese manufacturers to overseas companies are mostly in a price range aiming for volume sales, whereas higher price range materials with higher added value seem to be sourced by manufacturers in their own country.
In the higher price range market, it won’t be easy for Chinese manufacturers to catch up with their Western counterparts. One possible scenario is for them to buyout overseas manufacturers. Having gained funds after listing on the stock exchange, Chinese perfume ingredient manufacturers could stride ahead with overseas mergers and acquisitions, gain more expertise and grow. In such a case, we may see the global supply chain for cosmetics and perfume ingredients undergo a complete makeover.
Text: Ching Li Tor
Original text (Japanese): Team Roboteer
