Growing Shadows Over Cosmetics Stocks... Will Only LG Household & Health Care and Cosmax Smile?

Overall Weak 3Q Earnings for Cosmetics Companies
AmorePacific Operating Profit Halved YoY
LG Household & Health Care and Cosmax Expected to Perform Well

On May 12th, the Myeongdong street in Jung-gu, Seoul, where cosmetic stores are concentrated, appeared quiet. Photo by Jinhyung Kang aymsdream@

[Asia Economy Reporter Minwoo Lee] The fortunes of cosmetics companies are expected to diverge. In the third quarter, many companies including Amorepacific, led by Amorepacific, Aekyung Industrial, and Kolmar Korea, are expected to post disappointing results. On the other hand, LG Household & Health Care and Cosmax are analyzed to achieve solid performance and growth.

According to financial information provider FnGuide on the 28th, the consensus forecast for Amorepacific's consolidated third-quarter results is sales of 1.1662 trillion KRW and operating profit of 55.3 billion KRW. Compared to the same period last year, sales are expected to decrease by 16.82% and operating profit by 48.57%. Some predict that operating profit will fall to less than half of that in the third quarter of last year. Hana Financial Investment projected Amorepacific's third-quarter operating profit to decrease by 59% year-on-year to 44 billion KRW. It is evaluated that it is difficult to discuss brand value enhancement as Sulwhasoo's growth rate in China is only about 10%.

Kolmar Korea is also showing a sluggish trend. Third-quarter sales are expected to reach 370.6 billion KRW, an increase of only 2.68% compared to the same period last year. Researcher Jongdae Park of Hana Financial Investment said, "Since sales to the U.S. did not increase in the previous quarter, the annual sales growth is small despite the low base last year," adding, "'Atomy' sales have increased by more than 30%, but other buyer sales are sluggish, making it insufficient to drive performance and stock momentum."

Aekyung Industrial and Clio are also expected to perform poorly. According to FnGuide, the third-quarter operating profit consensus is 32.6 billion KRW for Aekyung Industrial and 15.1 billion KRW for Clio. These represent decreases of 40.56% and 18.99% respectively compared to the same period last year. It is assessed that due to the limitations of color cosmetics brands, it has become difficult to expect performance momentum this year.

On the other hand, the atmosphere for LG Household & Health Care and Cosmax is different. LG Household & Health Care's third-quarter consolidated consensus is sales of 1.9373 trillion KRW and operating profit of 313.1 billion KRW. Compared to the same period last year, sales decreased by 1.40% while operating profit increased by 0.40%. Although duty-free sales are declining, the rate of decrease has lessened compared to the second quarter. The growth rate of the Chinese subsidiary is around 20% year-on-year, and the household goods and beverage businesses continue steady performance improvements following the second quarter. Researcher Park explained, "Household goods will see a significant improvement in profitability due to strong sales of hand sanitizers and premium products such as Dr. Groot Himalayan Pink Salt," adding, "It is also positive that various LG Household & Health Care products including hand sanitizers are being sold in the U.S. market through New Avon." The beverage business, which has its peak season in the third quarter, is expected to face sluggish convenience store channels due to prolonged rainy season and the resurgence of COVID-19, but performance is expected to improve thanks to high growth in delivery markets, expansion of online sales, and significant increases in sales of high-margin products such as 'Zero Cola' and 'Monster Energy.'

Cosmax is expected to see significant growth. Third-quarter consolidated sales are forecast at 359.5 billion KRW and operating profit at 17.5 billion KRW. Compared to the same period last year, sales are expected to increase by 13.22% and operating profit by 68.38%. Researcher Park said, "The Shanghai subsidiary in China has increased online buyer sales to 45%, and profitability is expected to improve significantly due to production efficiency," adding, "The Guangzhou subsidiary's sales growth rate is also expected to recover to over 20% year-on-year."