Cosmetics Leaders Show Strong Earnings... Recovering from COVID-19 Impact
This Month's Stock: AmorePacific Up 7.16%, LG Household & Health Care Down 2.48%
Institutional Buying Divides Fortunes
[Asia Economy Reporter Song Hwajeong] LG Household & Health Care and Amorepacific, the leading companies in the cosmetics sector, both recorded strong first-quarter results this year, signaling a full recovery from the impact of COVID-19. However, their stock price trends diverged. While Amorepacific’s stock price showed an upward trend, reaching new highs, LG Household & Health Care’s stock price remained sluggish.
According to the Korea Exchange on the 30th, Amorepacific’s stock price rose 7.16% since the beginning of this month. In contrast, LG Household & Health Care’s stock price fell by 2.48%. Amorepacific reached a 52-week high of 278,000 KRW during intraday trading yesterday. Since successfully stabilizing in the 200,000 KRW range at the start of the year, Amorepacific has steadily raised its peak prices. On the other hand, LG Household & Health Care has been on a downward trend since touching 1.7 million KRW in January, which was a 52-week high.
Both companies, which were hit hard by COVID-19 last year, showed clear signs of recovery with solid first-quarter results. LG Household & Health Care’s consolidated first-quarter sales amounted to 2.0367 trillion KRW, a 7.4% increase compared to the same period last year, and operating profit rose 11% to 370.6 billion KRW. This marks the highest first-quarter performance in the company’s history. Mi-jin Cho, a researcher at NH Investment & Securities, analyzed, "Although sales slightly missed market consensus, operating profit exceeded expectations due to strong performance in household goods and beverage sectors, alleviating market concerns."
Amorepacific also posted results that significantly surpassed market expectations. The company recorded first-quarter sales of 1.2528 trillion KRW and operating profit of 176.2 billion KRW, representing increases of 10.8% and 189.2% year-over-year, respectively. Eun-jung Park, a researcher at Yuanta Securities, stated, "Amorepacific’s first-quarter operating profit exceeded the revised consensus estimates by 20%. This is the first sales increase since COVID-19, and the company’s overall operating margin stabilized at 14%, achieving double-digit profitability. The level of profit strength achieved at the early stage of recovery is encouraging."
Although both companies posted strong results, differences in growth rates and the extent to which they exceeded market expectations appear to have contributed to the divergence in their stock prices.
The differing institutional investor activity also seems to have influenced the stock price outcomes. Over the past week, institutions purchased Amorepacific shares worth 17.9 billion KRW, while they sold LG Household & Health Care shares worth 12.3 billion KRW.
As the recovery trend continues, further improvements in performance are expected, leading to positive prospects for future stock price movements. Securities firms have been raising their target prices for Amorepacific one after another. NH Investment & Securities raised Amorepacific’s target price from 310,000 KRW to 350,000 KRW, DB Financial Investment set it at 360,000 KRW, and Hanwha Investment & Securities at 350,000 KRW. Samsung Securities raised its target price by 7% to 270,000 KRW. Researcher Cho commented, "The speed and level of performance improvement exceed market expectations, easing the biggest concern of high valuation burdens. Demand for the Sulwhasoo brand in China is rising, and profitability across channels is recovering, so this is not simply an improvement due to last year’s base effect but the early stage of a mid- to long-term performance upswing."
Hyunjin Park, a researcher at DB Financial Investment, evaluated LG Household & Health Care by saying, "Sales growth focused on premium brands is driving profit improvement, and it is important to focus on the stable increase in demand, especially centered on China. Although the burden of last year’s performance base may make growth attractiveness appear somewhat lower compared to other companies this year, the mid- to long-term fundamentals are solid and attractive."
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