[Click eStock] "Cosmax Runs Looking at China, Shedding Negative Base Effects"

Domestic Demand for Cleaning and Disinfectants Stabilizes, Creating a Low Base Effect
Rapid Growth in Shanghai and Guangzhou, China... "Will Drive Growth This Year"

[Asia Economy Reporter Minwoo Lee] Cosmax is expected to post somewhat sluggish results in the first quarter of this year compared to the same period last year. It is analyzed that there is an inevitable base effect burden in the cleaning and disinfectant sectors. However, since clear growth is taking place in places such as Guangzhou and Shanghai in China, the potential is considered sufficient.

On the 12th, Meritz Securities maintained a 'Buy' investment rating on Cosmax with this background and raised the target price by 23% to 160,000 KRW. The closing price on the previous trading day was 121,500 KRW.

Meritz Securities forecast that Cosmax will record consolidated sales of 349.5 billion KRW and operating profit of 15 billion KRW in the first quarter of this year. Sales are expected to increase by 6% year-on-year, but operating profit is expected to decrease by 7%. Although sales increased due to the recovery of overseas orders, operating profit is expected to decline due to a decrease in domestic cleaning and disinfectant sales.

In fact, domestic sales and operating profit are estimated to have decreased by 2.1% and 32.2% year-on-year to 218 billion KRW and 11.1 billion KRW, respectively. This is because cleaning and disinfectant sales sharply dropped from 15 billion KRW in the first quarter of last year to 2 billion KRW in the first quarter of this year. Hanuri, a researcher at Meritz Securities, explained, "The first half of last year was the early stage of the COVID-19 outbreak, which gave strong pricing power for related products, and volume was concentrated in large companies, improving profitability. This is also the reason for the profit decline in the first half of this year."

However, growth potential was demonstrated in overseas business. In particular, sales growth in China is steep. Shanghai and Guangzhou are expected to record sales of 76.1 billion KRW and 31.2 billion KRW, respectively, increasing by about 20% and 25% year-on-year. Researcher Han said, "The recovery of cosmetics retail sales in China is remarkable. Among them, Shanghai has completed the transition to non-turnkey contracts, and Guangzhou is expected to benefit from the ripple effect of flagship client store openings."

In addition, the U.S. is expected to record sales of 23.7 billion KRW and 23.9 billion KRW in NuWorld and Ohio, respectively, representing increases of 15% and 40%. The addition of disinfectants was effective. Thailand is also estimated to have increased sales by about 10% year-on-year due to the recovery of orders from existing clients. On the other hand, Indonesia, which experienced business disruptions due to COVID-19, is expected to decrease by about 15% compared to the same period last year.