Conflicting Views on 'Strong Performance' of Amorepacific

Stock Price Up 26% This Year
"Post-Corona Beneficiary Stocks" vs "Overvalued Compared to Earnings"

[Asia Economy Reporter Park Jihwan] Securities firms have mixed views on Amorepacific, the leading cosmetics company in Korea. While expectations are rising that it will be a representative beneficiary stock in the post-COVID era as vaccination accelerates, on the other hand, cautious opinions are emerging that the stock price is overvalued relative to earnings and there is a high possibility of price correction.

According to the Korea Exchange on the 24th, Amorepacific's stock price rose 26.2% from the beginning of this year until the day before. This is more than twice the 11.4% increase of other major domestic cosmetics listed stocks since the beginning of the year. The reason for Amorepacific's stock price increase is attributed to a clear improvement in performance due to the resumption of outdoor activities. In the first quarter of this year, consolidated sales were KRW 1.2528 trillion, and operating profit was KRW 176.2 billion, growing 10.8% and 188.9% respectively compared to the previous year. Profitability also rose to a mid-double-digit level of 14.1% operating margin, the highest in three years since the first quarter of 2018. According to financial information provider FnGuide, annual operating profit is also expected to rise nearly fourfold to KRW 553.8 billion from KRW 143 billion in the same period last year.

Despite these strong earnings forecasts, recent opinions among securities firms have begun to diverge as the second-quarter earnings outlook is reportedly weaker than expected. There is analysis that Amorepacific’s China and duty-free store performance in the second quarter will fall short of market expectations. While the domestic duty-free market’s sales in the second quarter are expected to grow by about 10-15% compared to the first quarter, there are market concerns that Amorepacific’s duty-free store sales will decline in single digits. Additionally, Innisfree’s sales in China are expected to drop by 20-30% compared to the previous year.

Despite concerns over earnings, the securities industry’s view on Amorepacific remains positive. Jomi Jin, a researcher at NH Investment & Securities, said, "Even if the second-quarter earnings estimates are revised downward, the demand for Sulwhasoo in China remains solid, and the successful transition to domestic online channels suggests that the overall upward trend in earnings will continue." Shin Suyeon, a researcher at Shin Young Securities, stated, "The restructuring effect related to offline channels is leading to a reduction in selling and administrative expenses, lowering fixed cost burdens," adding, "Operating profit margin is estimated to increase by more than 7 percentage points compared to last year."

However, cautious investment opinions are also emerging as stock prices have surged recently while earnings estimates have decreased. Park Shinae, a researcher at KB Securities, said, "Since the stock price has surged since November last year, a ‘strong second-quarter earnings performance’ is an indispensable condition for the stock price’s upward trend to continue," and warned, "If earnings fall even slightly short of market expectations due to valuation burdens, profit-taking selling will inevitably occur."