[Click eStock] CNC International, Superior Color Competitiveness 'Significantly Undervalued'

[Asia Economy Reporter Lee Seon-ae] Hana Securities judged that CNC International, the largest domestic point makeup ODM specialist, has superior product capabilities and growth potential with expanded business areas, resulting in high mid- to long-term growth potential and earnings visibility. However, no investment opinion or target price was provided. The stock price was diagnosed as significantly undervalued with a 12-month forward price-to-earnings ratio (PER) of 9 times compared to fundamentals.

Jongdae Park, a researcher at Hana Securities, said, "With a high proportion of non-China markets such as the US and Japan, the recent global spread of K-beauty has been notably beneficial. Especially in the US, interest in formulations such as tints and lip fondue is increasing due to the spread of K-culture." He added, "With the completion of new factory investment last year, the company is entering a steep investment recovery phase, and consolidated operating profit this year is expected to increase by 610% to 16 billion KRW." Additionally, the rapid sales growth of the Chinese subsidiary was noted as an additional factor for performance improvement.

In the second quarter, consolidated sales increased by 32% year-on-year to 30.7 billion KRW, and operating profit turned positive with an increase of 4.4 billion KRW year-on-year to 3.4 billion KRW. Domestic buyer sales, accounting for 60% of sales, increased by 36%, while North America and Asia (excluding China) sales also grew significantly by 89% and 57%, respectively, increasing their contribution. The North American sales proportion rose to 18.7% (up 5.7 percentage points). Operating profit margin rose to 11.0% (up 15.5 percentage points) due to the easing of fixed cost burdens from increased utilization of the new domestic factory.

Despite the off-season in the third quarter, sales growth is expected to continue. Orders from North American company T more than doubled compared to last year, potentially making it the top sales contributor for the year. Additionally, increased orders from major clients such as company R and company L are expected to raise North American sales proportion to 22% in the third quarter.

If sales of global brand company Y’s lip products fully materialize, the contribution from the North American region could level up further. Chinese sales, which had slowed due to the Shanghai lockdown in the second quarter, are rapidly recovering with orders from company I since August. Third-quarter sales are estimated to increase by 50% to 35.4 billion KRW, and operating profit is expected to increase by 166% to 5.1 billion KRW.