[Click eStock] AmorePacific Still Has a Long Way to Go... 3Q Also 'Gloomy'

Domestic and International Both Sluggish... Overseas Cosmetics Sector Turns to Deficit

[Asia Economy Reporter Minwoo Lee] Amorepacific is expected to post weak results again in the third quarter. Both domestic and Chinese sales are generally expected to fall short of expectations, significantly reducing profitability.

On the 25th, KTB Investment & Securities forecasted that Amorepacific would achieve sales of 1.168 trillion KRW and operating profit of 38.9 billion KRW in the third quarter of this year. Compared to the same period last year, sales are expected to decrease by 17% and operating profit by 64%, significantly below market expectations.

Both domestic and overseas markets are expected to perform poorly. Domestic cosmetics sales are estimated at 583 billion KRW, with operating profit of 38.4 billion KRW, down 25% and 48% respectively from the third quarter of last year. The impact of the resurgence of COVID-19, offline channel restructuring, and weakening market share were significant factors. The year-on-year growth rates by sales channel were analyzed as department stores -20%, door-to-door sales -25%, Aritaum -50%, and duty-free -43%. Only online sales are expected to grow by 55% during the same period. In particular, the poor performance of duty-free, which drove strong results in the same period last year, is a major burden. Since it grew above the market growth rate at that time, it may be a relative burden in this quarter's evaluation.

Due to sluggishness in China, the overseas cosmetics segment is also expected to struggle. Overseas cosmetics sales are forecasted at 431.9 billion KRW, with an operating loss of 14.1 billion KRW. Sales are expected to decrease by 11% year-on-year, and operating profit is expected to turn to a loss. Regional growth rates are expected to be China -9%, Hong Kong -50%, and Europe and North America -10%. The continued deficit trend is attributed to poor sales in the Greater China region, which accounts for a high proportion of profits.

Meanwhile, domestic daily necessities such as detergents and shampoos are expected to see slight growth. Sales are projected at 155.2 billion KRW, with operating profit of 9.7 billion KRW, increasing by 3% and 8% respectively compared to the same period last year.

Against this backdrop, KTB Investment & Securities maintained a 'hold' rating and a target price of 170,000 KRW. The closing price the previous day was 159,500 KRW. Researcher Baesong from KTB Investment & Securities stated, "Last year, the strategic shift to online and luxury segments raised the possibility of medium- to long-term structural improvement, but short-term disappointing results continue due to COVID-19 and the poor performance of Innisfree," adding, "It will take more time for the structural improvement results to appear."