[Click eStock] "Amorepacific, Weak Overseas Performance"

Weakness in Chinese Market and COVID-19 Spread in Some Asian Regions
Yuanta Securities "Amorepacific Target Price Lowered from 195,000 KRW to 170,000 KRW"

[Asia Economy Reporter Gong Byung-sun] Amorepacific's overseas performance in the fourth quarter of last year is still observed to be sluggish. Although the weak trend is expected to continue until the first half of this year, a recovery is anticipated in the second half.

On the 6th, Yuanta Securities estimated Amorepacific's fourth-quarter sales of last year to be 1.2 trillion KRW, a 1% increase compared to the same period last year, and operating profit to have turned positive to 37.8 billion KRW during the same period. The operating profit is about 33.1% below the market consensus.

The domestic market has somewhat recovered. The duty-free sector is expected to grow by 15%, e-commerce by 20%, and other domestic sales by 5%. Additionally, domestic sales have recovered to 90% of the 2019 fourth-quarter level, and margin growth of about 8% is expected due to product portfolio improvements and cost efficiency efforts.

On the other hand, overseas markets generally appear sluggish. Weakness in the Chinese market and the spread of COVID-19 in some Asian regions had adverse effects. Sales in the Chinese market for the fourth quarter of last year are expected to have decreased by 10% year-on-year, with an operating profit margin of about 3%.

Researcher Park Eun-jung of Yuanta Securities explained, "Due to store reductions, inventory slimming in distribution, and weak demand, Innisfree's sales have plummeted by more than 50%, which likely expanded the decline in Chinese sales compared to the previous quarter," adding, "Market demand contraction and intensified e-commerce competition are also burdensome factors."

This year is expected to show a pattern of weak first half and stronger second half. The China segment is undergoing structural improvements until the first half, making momentum weakness inevitable. However, since Chairman Seo Kyung-bae of Amorepacific expressed his commitment to digital transformation and brand strengthening in his New Year's address, investment attractiveness is expected to improve around the second quarter of this year.

Accordingly, Yuanta Securities maintained its investment opinion of 'Hold' on Amorepacific and lowered the target stock price from the previous 195,000 KRW to 170,000 KRW. The closing price on the previous day was 162,000 KRW.