In mid-March 2026, Eternal Beauty Holdings, known as the "first listed perfume stock in Hong Kong" having been on the market for less than nine months, became embroiled in an audit controversy due to a suspicious large prepayment. The company announced on the evening of March 16 that its auditor, PwC, had resigned. The reason cited was a HKD 70 million prepayment made to three service providers shortly after the company's IPO. PwC stated it was unable to establish a timetable for the additional audit procedures required for this matter, and the two parties failed to agree on the associated additional audit fees. Following this news, trading in Eternal Beauty shares was suspended on the morning of March 17 pending the release of a further announcement.
The disagreement stemmed from a single prepayment. According to the announcement from Eternal Beauty, PwC submitted its resignation letter on March 16, effective immediately. The letter disclosed that Eternal Beauty completed its initial public offering on the Hong Kong Stock Exchange on June 26, 2025. Shortly after listing, the company entered into agreements with three service providers for multi-year public relations services, data analysis and consulting services, and social media promotion services, for which it had prepaid HKD 70 million.
Regarding this matter, PwC requested the company's management to provide explanations, information, and documents addressing four key issues: the background of these service providers and their roles or involvement in the company's IPO; the company's internal controls and approval procedures prior to engaging these suppliers; whether the service fee levels, contracts, and payment terms were comparable to market rates for similar services; and whether the payments to the suppliers constituted listing expenses or had been considered in the intended use of IPO proceeds.
The announcement indicated that Eternal Beauty has appointed an independent professional advisor to investigate these matters, overseen by the board's audit committee. PwC explicitly stated that the findings of this investigation would form the basis for its audit of the 2025/2026 fiscal year and would significantly impact the nature, timing, and extent of the audit procedures, thus requiring full awareness of the investigation's progress.
However, as of the date of the resignation letter, PwC had not received details regarding the scope of the investigation into these matters, nor had it obtained the requested explanations, documents, or information. Consequently, PwC stated it could not set a definitive timetable for completing the necessary additional procedures and indicated that handling these matters would incur additional audit fees, which needed to be agreed upon with the company.
Given PwC's inability to set a timetable for the additional procedures and the expected additional costs, Eternal Beauty decided to change auditors and requested PwC's resignation. PwC, after consideration, agreed to resign.
Eternal Beauty moved swiftly to appoint a new auditor. To protect the interests of the company and its shareholders, the board of Eternal Beauty had already resolved on January 6, 2026, to establish an independent investigation committee comprising all independent non-executive directors to investigate these matters. The committee has appointed Baker McKenzie as legal counsel and authorized it to engage Kroll Associates Limited as an independent forensic accountant to conduct the investigation. As of the announcement date, the investigation is still ongoing.
Simultaneously, upon the recommendation of the audit committee, RSM Hong Kong has been appointed as the new auditor, effective March 16, to fill the vacancy left by PwC's resignation. The appointment will last until the company's next annual general meeting. The audit committee conducted a comprehensive assessment of RSM's appointment, considering factors such as independence and objectivity, professional compliance capability, resources for executing the audit project, communication mechanisms, internal quality control, and market reputation.
The board of Eternal Beauty emphasized that PwC had not commenced any audit work for the fiscal year ending March 31, 2026; therefore, the change of auditor is not expected to significantly impact the group's annual audit and results announcement. The company has committed to providing RSM with all necessary information to complete the audit work.
Eternal Beauty's market performance has been under pressure since its listing. The company officially listed on June 26, 2025, with an issue price of HKD 2.88. As China's largest perfume group by 2023 retail sales value, it operates 72 external brands, including Hermès, Van Cleef & Arpels, and Chopard, with business spanning perfumes, color cosmetics, and skincare.
However, on its first trading day, the company's share price fell below the issue price, closing at HKD 2.40, a drop of 16.67%. Before the trading halt on March 17, the share price was HKD 2.03, representing a cumulative decline of 26.78% since listing, with a total market capitalization of approximately HKD 2.757 billion.
Financial data shows that for the 2023 to 2025 fiscal years, the company reported revenues of RMB 1.699 billion, RMB 1.864 billion, and RMB 2.083 billion, respectively. Net profits for the same periods were RMB 173 million, RMB 206 million, and RMB 227 million. The prospectus also disclosed that before the IPO, controlling shareholders Mr. Liu Jurong and his wife received cumulative dividends of approximately RMB 624 million, slightly exceeding the total net profit for the same period.
It is noteworthy that Eternal Beauty estimated total listing expenses to be around RMB 73.1 million, including approximately RMB 30.2 million paid to legal advisors and PwC. The contentious HKD 70 million prepayment is close to 8% of its net IPO proceeds of approximately HKD 883 million and is nearly equivalent to its total listing expenses.
The incident has prompted market scrutiny under an audit trust crisis. In an environment of increasing regulatory scrutiny, audit firms are acting more proactively as financial gatekeepers and risk sentinels. When unable to obtain sufficient evidence on critical matters, accounting firms increasingly prefer to resign rather than assume potential risks.
For Eternal Beauty, the key issue now is how to clearly explain the commercial rationale behind the HKD 70 million prepayment to the market and whether the decision-making process behind it can withstand scrutiny. In an industry heavily reliant on brand and channel trust, credibility in the capital market is an intangible asset that requires long-term cultivation.
As of the time of writing, Eternal Beauty has not released any further announcements, and the independent investigation is ongoing. The market is closely watching for the investigation's results and the upcoming annual audit work by the new auditor, RSM.