Aekyung Industrial, Conditions for Earnings Turnaround...Urgent Need for Cosmetics Sales Recovery

[Asia Economy Reporter Park Jihwan] Shinyoung Securities analyzed on the 7th that a recovery in cosmetics sales is crucial as a condition for a turnaround in performance for Aekyung Industrial. The investment opinion was set to neutral, with a target price of 22,000 KRW.

Shin Suyeon, a researcher at Shinyoung Securities, stated, "Aekyung Industrial's Q3 sales and operating profit recorded 152.2 billion KRW and 8.2 billion KRW, down 11.1% and 44.7% respectively compared to the same period last year." The cosmetics division posted sales of 47.1 billion KRW and operating profit of 3.5 billion KRW, decreasing by 37.0% and 65.0% year-on-year. The household goods division saw sales increase by 9.0% to 105.1 billion KRW, while operating profit decreased by 4.1% to 4.7 billion KRW.

Although Aekyung Industrial's Q3 performance exceeded consensus, it is still assessed as a challenging situation. Sales decline narrowed compared to Q2 due to increased overseas sales of cosmetics and household goods and the impact of the holiday season.

Researcher Shin commented, "For a performance turnaround, improvement in the Chinese masstige color cosmetics market and duty-free consumption is essential," adding, "Despite an unfavorable external environment, the company is expanding its market share in the BB cream segment within online channels."

She emphasized, "Since the spread of COVID-19, sales of cosmetics and personal care products through overseas digital channels have been steadily expanding," and "This year, the company directly entered Amazon in Q2 and expanded into four Southeast Asian countries via the e-commerce channel Shopee in Q3, responding to growing online demand outside China."

However, it is regrettable that negative growth continues due to a decline in high-margin cosmetics sales. Researcher Shin stated, "Due to intensified competition in home shopping, prolonged COVID-19, and changes in consumption centered on luxury duty-free products, it is difficult to expect short-term performance improvement in the adverse business environment."