Growing Expectations for Cosmetics Stocks' Performance

[Asia Economy Reporter Ji-hwan Park] The securities industry is raising its earnings expectations, anticipating a rapid recovery in consumption in the cosmetics sector, which had sharply contracted last year due to the impact of COVID-19.

According to financial information firm FnGuide on the 23rd, the average target stock price for Amorepacific by securities companies rose 6.55% from 265,895 KRW two months ago to 283,333 KRW. During the same period, Korea Kolmar increased from 64,933 KRW to 69,333 KRW, up 6.78%, and LG Household & Health Care also rose 1.06% from 2,003,684 KRW to 2,025,000 KRW.

The recent upward revision of target stock prices by securities firms is due to expectations of a full-scale demand recovery in the cosmetics industry. Last year, the cosmetics sector was one of the most severely affected industries by the COVID-19 pandemic. The widespread use of masks to prevent the spread of the coronavirus led to a sharp global decline in demand.

However, this year, high performance is expected based on the base effect from the spread of COVID-19 and the resumption of economic activities following vaccination. In particular, strong earnings are anticipated based on cosmetics sales in the Chinese market. China recorded an economic growth rate of 2.3% last year, and domestic consumption surged by nearly 30% during the Lunar New Year holiday, indicating a strong recovery in China’s real economy.

For Amorepacific, a leading domestic cosmetics company, strong earnings growth is expected due to the popularity of its luxury cosmetics brand Sulwhasoo and business structure reorganization. It is forecasted to be a year of strong rebound after four years of declining performance. Amorepacific’s operating profit has been on a downward trend since recording 848.1 billion KRW in 2016, falling to 143 billion KRW last year. This year, it is expected to rise to 425.6 billion KRW. Additionally, restructuring efforts are underway to reduce the offline business proportion and expand the digital business. Last year, 200 Aritaum stores in Korea and more than 140 Innisfree stores in China were closed.

For LG Household & Health Care, consolidated sales for the first quarter are expected to reach 2.0584 trillion KRW, an 8.5% increase year-on-year, and operating profit is projected to increase 11.1% to 370.8 billion KRW. In particular, sales in the Chinese local market and duty-free channels are expected to increase by 45% and 25%, respectively, compared to a year ago.

Mi-jin Cho, a researcher at NH Investment & Securities, said, "With the expansion of vaccination rates, increased Chinese consumption, and signals of recovery in Korea-China relations, the business environment related to China is improving. Domestic cosmetics companies have demonstrated strong local demand in China through rapid sales recovery despite the COVID-19 situation, so we can expect strong earnings momentum for related companies."