[Click eStock] "Amorepacific, Target Price Down 6% Due to Chinese Government's Passive Economic Stimulus Measures"

[Asia Economy Reporter Kwon Jae-hee] KB Securities maintained its 'Buy' rating on Amorepacific on the 19th, while lowering the target price by 6% to 170,000 KRW.

Amorepacific's consolidated Q3 results are expected to show sales of 1.0182 trillion KRW and operating profit of 37.3 billion KRW, down 8% and 26% respectively compared to the same period last year. Both figures fall short of market consensus by 5% and 27%, respectively.

By business segment, domestic cosmetics sales are estimated to decline by 8%, with operating profit decreasing by 27%. Duty-free sales plunged 30%, continuing a decline for the third consecutive quarter, while e-commerce sales rose 17%, though the growth rate is expected to slow compared to the past.

Sales from the China subsidiary are expected to fall 16%, with an operating loss of 17.3 billion KRW (turning to a deficit). Sulwhasoo sales are projected to drop 10%, attributed to conservative marketing and promotional activities in July and August ahead of the early September relaunch of Yunjo Essence and ambassador changes. Innisfree and Mamonde saw sales decrease by 50% and 40%, respectively, due to aggressive store closures.

Other countries show promising growth, with North America expected to achieve high growth. Sales and operating profit are forecasted to grow by 36% and 51%, respectively. Other Asian sales are expected to grow 15%, with operating profit margins remaining steady at around 8%.

KB Securities analyst Park Shin-ae commented, "We had anticipated a recovery in the business environment in China in Q3 due to strong COVID-19 lockdown measures, but the Chinese government's passive economic stimulus appears to have led to elevated inventory levels among cosmetics companies operating in China. However, from a mid- to long-term perspective, we still believe the recovery of the Chinese cosmetics market and the turnaround of Amorepacific's China subsidiary remain valid expectations."