[Click eStock] "Cosmax, Limited Profit Outlook Despite Expected 1Q Weakness"

On the 26th, Samsung Securities maintained its buy rating and target price of 113,000 KRW for Cosmax, stating that although the company's first-quarter earnings this year are expected to be weaker than anticipated, the profit forecast was only slightly adjusted.

Cosmax's first-quarter sales this year are projected to decrease by 3% year-on-year to 384.4 billion KRW, and operating profit is expected to decline by 21% to 10.9 billion KRW.

Researcher Park Eun-kyung of Samsung Securities explained, "The key point to watch in the first-quarter results is not that operating profit is expected to fall short of market expectations and that it will experience negative growth for five consecutive quarters compared to the previous year," adding, "It is important to note that dramatic performance improvements are being observed monthly, from the Korean subsidiary to the Chinese and U.S. subsidiaries."

For the Chinese subsidiary, sales are expected to decrease by 14% year-on-year to 128.8 billion KRW, and net profit is projected to drop by 41% to 8.9 billion KRW. This decline is attributed to severe production disruptions caused by a surge in infections in January and February, making a year-on-year sales decrease inevitable. However, production has fully normalized since last month, and rapid order acquisition has helped offset much of the losses incurred in January and February.

The Korean subsidiary is expected to record sales of 221.6 billion KRW, an 8% increase year-on-year, while operating profit is forecasted to decline by 8% to 8.9 billion KRW. Researcher Park stated, "Despite a contraction in export demand to China, domestic consumption of cosmetics by Koreans showed a strong trend," and added, "Exports to most regions outside China by client companies performed well, leading to steady sales growth."

The U.S. subsidiary is projected to see sales fall by 43% to 25.4 billion KRW and a net loss of 8.4 billion KRW. One of the two factories was closed at the end of last year. Consequently, while sales are expected to decline sharply, the net loss is anticipated to narrow. The company is highly committed to turning around its performance.

Researcher Park said, "Although first-quarter results are expected to be weaker than our initial forecast, we did not significantly revise this year's profit outlook because demand in China has been recovering faster than expected since March, which justifies raising expectations for performance from the second quarter onward," adding, "We forecast operating profit this year to reach 126.8 billion KRW, a 139% increase year-on-year, which is 20% higher than the market consensus estimate."

Furthermore, the geopolitical risks with China are assessed to have a limited impact on fundamentals. While the scenario of increased profits for the Korean subsidiary due to inbound consumption by Chinese consumers, which the market anticipates, may be affected, it is necessary to focus more on the expected performance improvements led by the Chinese subsidiary.