[Click eStock] "Amorepacific, the Start of a Turnaround"

[Asia Economy Reporter Kwon Jaehee] Shinhan Investment Corp. maintained its 'Buy' rating and target price of 180,000 KRW for Amorepacific on the 2nd.

Amorepacific's Q4 consolidated sales amounted to 1.0878 trillion KRW, and operating profit was 57 billion KRW. Sales decreased by 17.9% year-on-year, while operating profit increased by 122.7%, exceeding consensus by 32%.

Hyunjin Park, a researcher at Shinhan Investment Corp., analyzed, "As expected, the domestic and overseas reopening effects reduced the sales decline compared to the previous quarter, and China’s profit turned positive after two quarters. Although the base effect of a large one-time expense (40 billion KRW) incurred in Q4 2021 was highlighted, the major factor was the lowered breakeven point level due to the elimination of inefficient cost elements both domestically and internationally."

Duty-free sales reached 190.1 billion KRW, increasing by 30% compared to the previous quarter, showing a better performance than similar companies. Domestic e-commerce lacked growth year-on-year due to slower-than-expected recovery in daily beauty and reverse direct purchase demand. It is positive that China reduced the sales decline and returned to operating profit, and North America’s profit contribution is increasing. If the current trend continues, the operating profit ratio outside China is expected to reach 50% in 2023, indicating risk diversification as anticipated.

However, the reopening effect is minimal due to the rapid increase in COVID-19 cases in China. Still, there are signs that the number of confirmed cases will peak out after the Lunar New Year, suggesting the reopening timing may be earlier than expected.

From March, the Sulwhasoo brand renewal effect is expected to be reflected in the consolidated results, and Innisfree plans to close most of its stores in China within the first half of the year while increasing the concentration of e-commerce sales. Currently, Innisfree’s e-commerce sales ratio in China is growing to over 80%. In North America, sales growth is stronger than expected due to expanded customer touchpoints for Laneige and Innisfree, and ASEAN is steadily increasing margin contributions, which is positive.

Researcher Park stated, "The trend of reducing fixed cost burdens through restructuring, along with brand rebuilding and product renewal, will highlight the reopening results. We consider this the start of a turnaround, and with a lower breakeven point than before, the possibility of profit upgrades is higher, making it our top pick."