Cosmetics Stocks Expected to Rise Next Year on Duty-Free Sales Growth

Cosmetics Companies Generate 30-50% of Total Operating Profit from Duty-Free Shops
LG Household & Health Care, Amorepacific Expected to See Performance Growth Next Year

[Asia Economy Reporter Minji Lee] As sales of domestic cosmetics grow at duty-free shops, it is forecasted that cosmetics companies will continue their performance improvement trend until next year. On the 8th, Shinhan Financial Investment predicted that as the number of Chinese peddlers increases and duty-free shop sales recover, the cosmetics business, which accounts for 30-50% of profits at duty-free shops, will show significant growth.

Shilla Duty Free Renewed Cosmetics Select Shop

Domestic duty-free shop sales are expected to increase by 23% from this year to reach $16.4 billion. As of November, Chinese peddlers have not been able to enter sufficiently due to a shortage of flight tickets between Korea and China. Researcher Seong Jun-won of Shinhan Financial Investment said, “Since the number of flight tickets is likely to increase over time, next year’s duty-free shop sales will greatly exceed previous estimates.”

Assuming that from September to October next year, entry and exit will be possible without a two-week quarantine, the number of travelers is expected to reach 765,000 in the first half and 1.72 million in the second half. The number of arrivals is expected to be 476,000 in the first half and 962,000 in the second half. The annual total number of Chinese arrivals is expected to be 545,000.

The cosmetics industry is closely linked to duty-free shops. Before the THAAD deployment in 2017, general tourists visiting duty-free shops were important, but after THAAD, Chinese peddlers became significant. Due to COVID-19, duty-free shop sales decreased in the first half of this year, but from summer onwards, despite the two-week quarantine, peddlers’ duty-free sales rapidly grew. Researcher Seong Jun-won explained, “As peddlers’ sales show an increasing trend, the stock prices of LG Household & Health Care and Amorepacific, which account for most of the cosmetics market capitalization, as well as ODM stock prices, are also showing an upward curve.”

Looking at the third-quarter duty-free sales of cosmetics companies, LG Household & Health Care recorded 488.4 billion KRW, a 103.5% increase compared to the previous quarter. Amorepacific also showed an upward trend after hitting a low in the second quarter, growing 12.7% to 222 billion KRW during the same period. Regarding sales in China, LG Household & Health Care grew by 22%, and Amorepacific increased by 20%.

Both companies’ consolidated sales for next year are expected to increase compared to this year. LG Household & Health Care is forecasted to record sales of 8.29 trillion KRW and operating profit of 1.33 trillion KRW, increasing by 7.7% and 9.5%, respectively, from this year. Amorepacific is expected to record sales of 5.17 trillion KRW, an 18.2% increase from this year. Operating profit is projected to grow 79.9% to 376.8 billion KRW. Researcher Seong Jun-won said, “LG Household & Health Care will show significant growth in the first half due to the COVID-19 base effect,” and added, “Amorepacific will see a rapid recovery in duty-free and Chinese sales.”

Domestic ODM companies’ cosmetics business sales are also showing an upward trend without being shaken by COVID-19. Cosmax’s sales of not only cosmetics but also hand sanitizers are significantly increasing domestically. In China, sales from supplying online cosmetics brands have grown faster than expected, and in North America, sales growth continues through hand sanitizer production. Kolmar Korea is expected to improve its performance centered on the cosmetics business division next year.