Shinhan Investment Corp. stated on the 10th that the earnings bottom for Cosmax has passed, and the company is expected to stand out as a beneficiary of China's reopening (resumption of economic activities). Therefore, they maintain a buy rating and raise the target price from 87,000 KRW to 100,000 KRW. Based on the previous day's closing price (82,100 KRW), the upside potential is 21.8%.
Cosmax's consolidated sales for the fourth quarter of last year amounted to 400.5 billion KRW, down 5% year-on-year, and operating profit dropped 92% to 2.3 billion KRW. While sales met market expectations, operating profit fell short of both Shinhan Investment Corp.'s estimated profit (15.4 billion KRW) and the consensus (8.7 billion KRW).
The profit decline is attributed to an increase in cost ratio due to higher orders for color cosmetics and the reflection of one-time expenses from domestic and overseas subsidiaries. However, since the market had partially anticipated the possibility of one-time costs, it is difficult to consider this an earnings shock. Analyst Park Hyunjin of Shinhan Investment Corp. assessed, "Although a net loss was inevitable due to foreign exchange valuation losses outside of operations and provisions related to assets planned for sale and loans to the U.S. subsidiary, the withdrawal from the Ohio subsidiary will be completed within the first quarter of this year, which is positive as it reduces cost factors."
Analyst Park highlighted the confirmed trend of recovery in operating rates in China. The Shanghai subsidiary in China fully normalized from February, and the operating rate has been recovering from the 40% range in January to higher levels in February and March. Especially, considering that local consumer demand is expected to revive around the Chinese Women's Day, it is estimated that the Chinese subsidiary has passed its bottom. Additionally, the U.S. Ohio subsidiary is in the process of closure with minimal staff remaining, and equipment consolidation to the New Jersey subsidiary is underway. Although restructuring costs related to the U.S. will occur in the first quarter of this year, the scale of costs is expected to be significantly lower than in the fourth quarter of last year.
Analyst Park emphasized, "As a representative beneficiary of China's reopening, it is important to note the clear increase in local operating rates in China. Although challenges remain such as the listing issue of the Chinese subsidiary and resolving losses in the U.S., given the high expectations for China's reopening, few companies have advantages like Cosmax. Considering the current operating rate trend, we are raising our earnings estimates."
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