[Asia Economy Reporter Song Hwajeong] Amid the weak performance of cosmetics stocks due to the spread of COVID-19, the Q2 earnings outlooks of LG Household & Health Care and Amorepacific are diverging, leading to differing investment opinions and target stock prices.
According to the Korea Exchange on the 10th, Amorepacific closed at 239,500 KRW on the 9th, down 8,000 KRW (3.23%) from the previous day. Amorepacific has fallen 4.96% so far this month. LG Household & Health Care closed at 1,720,000 KRW, down 2.44%, marking a 2.39% decline this month. As COVID-19 cases hit record highs and spread rapidly again, stock prices, which had risen on expectations of mask removal due to expanded vaccination, appear to have turned bearish.
Although both stocks are showing weakness due to the impact of COVID-19, their future outlooks differ because of Q2 earnings. According to financial information provider FnGuide, LG Household & Health Care's Q2 operating profit consensus is 350.7 billion KRW, up 15.63% year-on-year. Amorepacific's is 116.1 billion KRW, up 229.83%. Despite the significant year-on-year increase in Amorepacific's earnings, securities firms expect it to fall short of consensus and have recently lowered Amorepacific's target prices one after another. Hanwha Investment & Securities forecasts Amorepacific's Q2 operating profit at 100.1 billion KRW, expecting it to miss consensus, and lowered the target price from 350,000 KRW to 330,000 KRW. KB Securities estimates Q2 operating profit at 108 billion KRW and cut the target price by 9% to 290,000 KRW. Shinhan Investment Corp also expects Q2 operating profit of 101.2 billion KRW and lowered the target price from 350,000 KRW to 310,000 KRW. KB Securities analyst Park Sinae said, "Amorepacific's stock price rose nearly 90% from the peak between November last year and May this year, so strong Q2 earnings were an essential condition for the upward trend to continue," adding, "Valuation remains burdensome, so if earnings fall even slightly short of market expectations, profit-taking sales are inevitable."
On the other hand, LG Household & Health Care is expected to post earnings in line with market expectations, leading to a rise in its target price. Hanwha Investment & Securities raised LG Household & Health Care's target price from 2,000,000 KRW to 2,140,000 KRW, expecting Q2 operating profit of 347.9 billion KRW to meet consensus.
Investment opinions are also divided. Cape Investment & Securities downgraded LG Household & Health Care's investment opinion from 'Buy' to 'Hold,' while upgrading Amorepacific's from 'Hold' to 'Buy.' Cape Investment & Securities analyst Kim Hyemi explained, "LG Household & Health Care showed weaker stock performance compared to peers since the beginning of the year but outperformed in the past month, with its 12-month forward price-to-earnings ratio (PER) rising to 34 times in 2021, leading to a reduced upside potential and a lowered investment opinion," adding, "Amorepacific's investment opinion was raised due to an expanded discount rate."
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