1Q Operating Profit Expected at 120 Billion KRW, Up 107% YoY
Restructuring China and Offline Channels... Strengthening Digital and Luxury Brands Effective
Duty-Free Store Optimism Rises with COVID-19 Restrictions Lifted
[Asia Economy Reporter Minwoo Lee] Amorepacific is expected to enter a clear performance rebound phase. Analysts believe that beyond a simple recovery, the company will continue stable growth as it has undergone internal structural improvements such as strengthening high-end brands and restructuring.
According to financial information provider FnGuide on the 29th, Amorepacific's consensus forecast for the first quarter of this year is sales of 1.2418 trillion KRW and operating profit of 126.3 billion KRW. This represents a 9.81% increase in sales and a 107.38% increase in operating profit compared to the same period last year. This is in stark contrast to the operating loss of 9.2 billion KRW recorded in the fourth quarter of last year. The outlook for the second quarter is also bright, with expected sales of 1.238 trillion KRW and operating profit of 107.5 billion KRW, which are forecasted to rise 17.27% and 205.29% respectively year-on-year.
It is evaluated that internal structural improvements were effective despite the difficult environment. After deteriorating public relations, Amorepacific’s offline channels and mass-market brands lost competitiveness, slowing growth. Performance slumped continuously after the COVID-19 outbreak. Analysts interpret the rebound not as a base effect but as a result of rapid internal improvements. Hyoju Son, a researcher at Hanwha Investment & Securities, explained, "Although external conditions remain uncertain, the positive aspect is that internal structural improvements are progressing rapidly. Since the second half of 2019, the company has withdrawn from underperforming offline channels and strengthened growing digital channels and luxury brands, and the fruits of these efforts are becoming visible."
In China, although Innisfree’s store closures continue, the high growth of Sulwhasoo is expected to sustain an overall increase in sales. Mijin Jo, a researcher at NH Investment & Securities, said, "Due to differences in the timing of the COVID-19 impact by region, domestic, European, and North American markets still face a high base burden through the first quarter. However, sales decline rates in domestic Aritaum, direct sales, and department stores are narrowing to around 10%, and profitability damage is expected to ease. In particular, the domestic duty-free channel’s decline is expected to shrink significantly compared to the fourth quarter."
Although the external environment remains unfavorable due to COVID-19, it is expected to gradually recover over time. Amorepacific has already pursued profit efficiency amid the crisis, so further performance growth is anticipated. Especially if duty-free stores recover next year, the average annual operating profit growth rate over the next two years is estimated to reach 100%.
Foreign capital has also been flowing in after a long time. Last week (March 22?26), foreign net purchases totaled 82.7 billion KRW, ranking sixth overall. Net buying continued for six consecutive trading days recently. This buying momentum is second only to the 12 consecutive trading days of net purchases in mid-January this year. The stock price is also on the rise. As of 10 a.m. on the day, it recorded 258,500 KRW, up 0.19% from the previous day. It has risen more than 14% since the 12th, closing higher on all days except one (the 18th). Researcher Son predicted, "As normalization progresses, combined with the effects of internal structural improvements, profit leverage will appear stronger than any other company."
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