[Click eStock] "Cosmax Performs Well in 1Q, Hopes Set on China"

Only Chinese Subsidiaries Grow... Increased Expectations for Future Market Growth

[Asia Economy Reporter Minwoo Lee] Cosmax performed well in the first quarter of this year by slightly exceeding market consensus expectations. Future performance is evaluated to depend on the extent of growth in the Chinese market.

On the 12th, KTB Investment & Securities maintained its 'Buy' rating and target price of 150,000 KRW for Cosmax based on this background. The closing price the previous day was 125,500 KRW.

The first quarter results were solid. On a consolidated basis, sales reached 345 billion KRW and operating profit was 23.3 billion KRW, increasing by 5.01% and 45.58% respectively compared to the previous year. Sales slightly missed the consensus by 3.05%, but operating profit exceeded it by 15.64%.

Performance varied by subsidiary. The improvement was led by the Chinese subsidiary, which exceeded expectations in both scale and profitability. Sales were 133.5 billion KRW, up 51% year-on-year. The operating profit margin is estimated to be over 10%. The Shanghai and Guangzhou subsidiaries grew by 57% and 36% respectively. During the same period, the Chinese cosmetics market grew by 41%. Researcher Bae from KTB Investment & Securities explained, "Growth was driven by online clients and recovery in the color cosmetics sector. Shanghai and Guangzhou have online client proportions of over 60% and 70% respectively, with Shanghai showing a steep recovery despite some large turnkey sales to certain clients in the previous year’s same period."

In Korea, sales were 188.5 billion KRW and operating profit was 15.9 billion KRW, decreasing by 7% and 3% respectively compared to the previous year. Excluding 10 billion KRW from hand sanitizer production in the previous year’s same period, sales remained largely unchanged while profits increased.

The US subsidiary showed somewhat weak performance. Sales were 32.3 billion KRW, down 14% from the first quarter of last year. Operating losses increased by about 40% to 7 billion KRW. Researcher Bae stated, "This was due to a decrease in new Hard Candy products and reduced internal transactions of finished products between subsidiaries. Recovery will take some time as it is necessary to overcome the negative base effect of hand sanitizers (15% of sales) and changes in the supply structure of Hard Candy (16% of sales)."

Analysis suggests that overall future performance improvement depends on China. The Chinese market is expected to grow over 20% in the second quarter as well. Researcher Bae forecasted, "Cosmax’s stock price has been rising due to expectations of strong performance in China but plunged after the decision on a paid-in capital increase by the amount of dilution and has recently rebounded again. The Chinese business situation remains solid, and with limited potential for further adjustments, the stock price direction depends on whether the Chinese growth rate exceeds expectations."