[Click eStock] "Worsening Chinese Consumer Sentiment"... AmorePacific Target Price Down

[Asia Economy Reporter Ji Yeon-jin] KB Securities announced on the 1st that it has lowered its operating profit estimates for Amorepacific from this year through 2023 and reduced the target stock price by 5% to 205,000 KRW. The neutral investment opinion was maintained.

Park Shin-ae, a researcher at Daishin Securities, said, "Amorepacific is facing not only uncertainty about brand competitiveness but also concerns about demand contraction due to worsening consumer sentiment in China," adding, "Although the poor performance in the third quarter of this year has already been reflected in the recent sharp stock price decline, it is difficult to expect momentum for a stock price rebound in the near term."

Amorepacific reported consolidated sales of 1.1089 trillion KRW in the third quarter, a 2% increase compared to the same period last year, while operating profit decreased by 10% to 50.3 billion KRW. Sales met consensus estimates, but operating profit fell short by a significant 35%. Domestic cosmetics sales grew by 12%, and operating profit increased by 124%, with duty-free and e-commerce sales growing by 15% and 30%, respectively.

However, traditional channel sales continued to decline with Aritaum down 10%, door-to-door sales down 5%, and department stores down an estimated 8%. Sales of the Chinese subsidiary decreased by 9%. Sulwhasoo sales (accounting for 38%) grew strongly by 47%, but Innisfree sales (accounting for 19%) are estimated to have dropped sharply by 55%. Due to the sales decline and increased marketing expenses, the operating profit margin is estimated to have worsened by about 3 percentage points compared to the same period last year. The other Asia segment, which was heavily affected by lockdowns, saw sales fall by 15% and recorded an operating profit of 500 million KRW (OPM 0.5%), according to estimates.

It is encouraging that Sulwhasoo sales in China grew by around 50%, but concerns about the business environment continue to grow. The growth rate of the Chinese cosmetics market in the third quarter of this year slowed sharply to 2%, and the contraction in Chinese consumption is expected to negatively impact the Korean duty-free market as well. Researcher Park stated, "Both the overheated promotional competition among cosmetics companies to stimulate consumption and the downward price pressure within duty-free shops are expected to continue."