Excerpts:

1. Consumption growth boosted the development of the cosmetics industry. The past 20 years saw the domestic cosmetics market size grow at a CAGR of as high as 23.8%, and a certain year recorded the highest growth of 41. 2. The company improved profitability year by year. 06-07 net profit soared 64.1% yoy and 107.81% yoy respectively. 3. Liushen showed steady growth and Herborist posted outstanding performance. 4. In view of its strategic shift, we believe the company is able to create a bright future by taking the steps of P&G and L'Oreal. 5. Valuation and rating: Our 08 target price is RMB35.26 and 08-10E EPS forecast is Rmb0.86, Rmb1.13 and Rmb1.68 respectively. We maintain our OVERWEIGHT rating on the counter. 6. Risks would arise from policy adjustment, brain drain, costs of share incentive scheme and market trend.