[Click eStock] Neopharm, Industry's Top Profitability and Current Stock Price in Undervalued Zone

[Asia Economy Reporter Lee Seon-ae] The Korea IR Council evaluated that despite Neopharm securing top-tier profitability within the industry, its current stock price level remains undervalued.

According to the Korea IR Council Research Center, Neopharm is a specialized company established in 2000 that manufactures, produces, and sells various skincare cosmetics based on its independently developed skin barrier MLE (Multi Lamellar Emulsion) technology. It holds key brands such as ‘Atopalm,’ a sensitive baby skin specialist brand; ‘Real Barrier,’ a dermocosmetic brand targeting women in their 20s and 30s; ‘Derma:B,’ a daily moisturizing body care brand; and ‘Zeroid,’ a cosmetic brand exclusively for hospitals and clinics.

By internalizing all processes from product/brand development, design, manufacturing, mass production, brand building, to sales based on the skin barrier technology MLE®, Neopharm secures cost competitiveness. Additionally, it has established a flexible production system responsive to consumer feedback, resulting in top-tier profitability within the cosmetics industry (operating profit margin of 25.5% in 2021 vs. LG Household & Health Care’s 15.9%).

Researcher Park Sun-young noted, "Based on estimated 2022 performance, the valuation stands at a price-earnings ratio (PER) of 8.7 times and a price-to-book ratio (PBR) of 1.2 times, which is undervalued compared to the average valuation of peer cosmetics companies with a PER of 18.0 times and PBR of 1.6 times."

However, as risk factors, she pointed out the slowdown in sales growth and the declining trend in operating profit margin. From 2012 to 2019, Neopharm achieved an average annual sales growth rate of 23.8%, but in 2020, sales declined by 2.5% compared to the previous year, and in 2021, sales grew by 7.4%, indicating a slowdown in sales growth compared to the past. Regarding profitability, the operating profit margin rose to 29.5% in 2018 but declined consecutively over three years to 27.9% in 2019, 26.3% in 2020, and 24.5% in 2021.

She added, "It is necessary to confirm signs of recovery in the company’s sales growth rate and a slowdown in the decline of profit margins through line extensions of existing brands and growth via new brands (such as pet care)."

Neopharm is expected to achieve sales of KRW 93.9 billion (+6.7%), operating profit of KRW 25.2 billion (+12.2%), operating profit margin of 26.8% (an improvement of 1.3 percentage points from the previous year), pre-tax profit of KRW 26.1 billion (+9.6%), and net income attributable to controlling shareholders of KRW 19.4 billion (+9.6%) this year.