[Click eStock] Cosmax, Momentum in China Business Performance... Target Price Raised by 15%

[Asia Economy Reporter Lee Seon-ae] On the 16th, KB Securities maintained its buy rating on Cosmax and raised the target price to 150,000 KRW, up 15% (raising the estimated CAGR of operating profit for the next 7 years (2021?27E) from +11% to +13%).

The main reason for the target price increase is the upward revision of operating profit estimates for the Chinese subsidiary by 26%, 29%, and 36% for 2021, 2022, and 2023, respectively. Cosmax is ① the No.1 ODM company in the ② rapidly growing Chinese cosmetics market, and ③ has established a top client lineup with local brand companies that have recently been driving market growth.

Park Shin-ae, a researcher at KB Securities, explained, "We recommend a buy approach as the stock price is expected to continue rising, supported by the performance momentum of the core business (China)."

Consolidated sales for Q1 are expected to be 351.2 billion KRW (+7% YoY), and operating profit is expected to be 21 billion KRW (+31% YoY, OPM 6%). Sales are in line with consensus, and operating profit is expected to exceed consensus by 14%. Domestic (separate) sales are expected to be 192.1 billion KRW (-5% YoY), and operating profit 13.4 billion KRW (-18% YoY). The decline in sales and profit is inevitable due to the base effect from the high-volume production of hand sanitizers at high prices in the same period last year.

Chinese sales are expected to reach 127.9 billion KRW (+45% YoY), and operating profit 12.9 billion KRW (+421% YoY). Sales in Shanghai and Guangzhou are expected to grow rapidly by 43% and 49%, respectively, and with increased sales improving production efficiency, the operating profit margin in China is estimated to reach 10%. US sales are expected to decline by 2% (Ohio +3%, NuWorld -6%), and a net loss of 7.6 billion KRW (similar loss level as the previous year) is expected, continuing a somewhat sluggish trend.

Sales and operating profit for 2021 are expected to grow by 9% and 44%, respectively. Domestic operating profit is expected to decrease by 16% due to the high base effect related to hand sanitizers. In China, sales are expected to grow rapidly by 27%, supported by increased orders from e-commerce clients and favorable business conditions. US sales are expected to decline by 3%, as the pace of business improvement is slow and hand sanitizer production volume is expected to decrease YoY. The net loss is estimated at 24 billion KRW, similar to the level in 2019.