[Why&Next] Aekyung Industrial Acquired by Taekwang... Will the "K-Beauty Legend" Be Rewritten?

Taekwang Industrial Selected as Preferred Negotiation Partner for Acquisition of Aekyung Industrial
Taekwang Moves Aggressively into B2C, While Aekyung Group Seeks Liquidity
Aekyung Lags Behind Emerging K-Beauty Powerhouses, Portfolio Diversification Is Key

Taekwang Group's acquisition of Aekyung Industrial, a core affiliate of Aekyung Group, is drawing attention as to whether it will join the global "K-Beauty" boom. This major deal is the result of Aekyung Group's need to secure cash amid a liquidity crisis and Taekwang's search for new growth engines during a petrochemical downturn. The key challenges will be overcoming Aekyung Industrial's reliance on a single brand in its cosmetics division and reducing its dependence on China for overseas sales.

According to industry sources on September 13, Aekyung Group's holding company, AK Holdings, announced on September 12 that it had selected the Taekwang Industrial consortium (Taekwang Industrial, T2 Private Equity, Yuanta Investment) as the preferred bidder for the sale of a 63.4% controlling stake in Aekyung Industrial, and signed a memorandum of understanding (MOU) regarding the stock purchase agreement.

Market observers estimate the sale price to be around 600 billion won, taking into account the management premium. However, it is reported that the acquisition price has been discussed in the range of 400 billion to 500 billion won. As of the previous day's closing, Aekyung Industrial's market capitalization stood at 409.9 billion won. If the transaction is finalized, Taekwang Industrial will become the largest shareholder of Aekyung Industrial.

Aekyung Group stated, "We have reviewed various options to improve the group's financial structure and adjust our business portfolio," adding, "Details such as the schedule for the stock purchase agreement and transaction amount may change depending on the progress of the contract and discussions among stakeholders."

Aekyung Group's decision to sell its core affiliate, Aekyung Industrial, comes as improving the holding company's financial structure has become an urgent priority. As of the end of last year, AK Holdings' total debt was approximately 4 trillion won, with a debt ratio of 328.7%, putting it in a liquidity crisis. After selling its non-core asset, Jungbu Country Club (Jungbu CC) golf course, Aekyung Group has also put Aekyung Industrial, the group's cash cow, up for sale to secure liquidity.

Founded in 1954, Aekyung Industrial has manufactured and sold household goods and cosmetics. As of the first half of this year, household goods accounted for 66% of total sales, overwhelmingly higher than cosmetics (34%). Cosmetics exports made up 56% of sales, while household goods were 81% domestic.

Aekyung Industrial maintained a "Big 3" structure in the domestic cosmetics market alongside Amorepacific and LG Household & Health Care. However, the landscape is changing with the emergence of new K-Beauty powerhouses such as APR and Gudai Global. In fact, APR overtook Aekyung Industrial to become the industry's third-largest player last year, and the battle for third place remains fierce this year. According to the annual sales consensus (the average forecast from securities firms over the past three months), LG Household & Health Care's estimated sales are 6.5595 trillion won, Amorepacific 4.2978 trillion won, and APR 1.3599 trillion won. Aekyung Industrial's estimate is 661.7 billion won, falling short of 1 trillion won.

Taekwang Industrial plans to use this acquisition as an opportunity to enter the B2C market. Previously, a significant portion of Taekwang Industrial's sales came from a textile and chemical-focused B2B business structure, resulting in high sales volatility depending on economic conditions and industry trends. In the second quarter of this year, Taekwang Industrial posted sales of 464.6 billion won and an operating loss of 18.9 billion won due to the petrochemical sector downturn.

However, B2C businesses focused on consumer goods are less affected by economic fluctuations, offering the advantage of stable earnings. In particular, Aekyung Industrial is considered an attractive acquisition target as it owns several well-known brands in the domestic household goods sector and stands to benefit from the popularity of K-Beauty.

According to the Ministry of Food and Drug Safety, the number of licensed cosmetics sellers surged from 4,853 in 2014 to 31,524 in 2023. As K-Beauty brands continue to post strong results in the United States, Europe, Japan, and other countries, attention is focusing on the corporate value of emerging K-Beauty players such as Gudai Global and Dalba Global.

China Accounts for 72% of Exports, High Dependence... "Fostering Mega Brands and Diversifying Export Destinations Are Key Tasks"

However, in the second quarter of this year, Aekyung Industrial posted consolidated sales of 171.3 billion won and operating profit of 11.2 billion won, down 1.3% and 36.1%, respectively, year-on-year. In the first half, sales were 322.4 billion won and operating profit 17.2 billion won, down 5.9% and 49.3%, respectively, from the previous year.

Currently, about 70% of Aekyung Industrial's cosmetics sales are generated overseas, with China accounting for 72% of exports, making its reliance on a single country a significant risk. Although the domestic cosmetics industry is booming, companies with a high proportion of sales from China are struggling, making "diversifying export destinations" a pressing challenge.

In response, Aekyung Industrial is focusing on expanding its overseas business beyond China to the United States, Japan, and other countries. The makeup brand "Toedit," first launched at Daiso in November last year, entered offline channels in the United States in July. AGE 20'S opened an official brand store on Amazon in the United States in 2020 and completed FDA registration. In April last year, the company also signed a business agreement (MOU) with Silicon2, a K-Beauty distribution platform.

Previously, Aekyung Industrial announced its plan to enhance corporate value by increasing the proportion of global sales from 35% to 43% by 2027, and boosting non-China sales from 26% to 240%. An industry insider commented, "Given the current proportion of exports to China, success in fostering mega brands and diversifying export destinations is essential to achieving the targets set in the corporate value enhancement plan," adding, "Since marketing is crucial in the cosmetics industry, it will be important to see how well the company strengthens its digital channels and leverages global partnerships."

Taekwang Industrial is expected to accelerate its overseas expansion based on its cash assets. As of the second quarter of this year, Taekwang's cash and liquid assets amounted to 2 trillion won. Lee Haeni, a researcher at Eugene Investment & Securities, explained, "After acquiring Aekyung Industrial, Taekwang is likely to focus on expanding overseas, especially given that 70% of exports currently depend on China. The company is expected to strengthen its position in overseas markets, centering on popular brands such as AGE 20'S and Luna."

However, some believe the effectiveness of this strategy remains to be seen, given Taekwang Industrial's history as a B2B-focused company. Another industry insider commented, "How quickly Taekwang can transform its business structure after the acquisition will be crucial," adding, "Since entry barriers in the cosmetics industry are low and many brands disappear quickly, Taekwang, as a newcomer to the cosmetics field, will need new momentum to compete with long-established beauty companies."