[This Week's Industry Trend] Cosmecca Korea, the 'Indie Beauty Queen' Loved Overseas... Performance and Stock Price Brighten

Operating Profit Up 370% Last Year... Record High Performance
Strength of US Indie Brands... 'Value Up' with OTC Products

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Cosmeca Korea, a specialized cosmetics manufacturing company, recorded record-breaking performance last year. Consequently, its stock price surged more than threefold compared to the beginning of the year, attracting significant market attention. Experts forecast that the record-breaking performance will continue next year, painting a rosy outlook.

Strong Performance Amid Popularity of Indie Beauty Brands

Cosmeca Korea is a manufacturing company specializing in Original Design Manufacturing (ODM) and Original Equipment Manufacturing (OEM) for cosmetics. In terms of sales scale, it is a mid-sized company ranked third domestically. Established in 1999, it was listed on the KOSDAQ market in 2016. Cosmeca Korea is famous as a ‘leader in emulsion makeup’ that pioneered the global trend by developing Korea’s first triple-functional BB cream.

Cosmeca Korea positions OGM (Original Global Manufacturing) as its key strategy. The traditional ODM model provides clients with product research and development, design, production, and sales strategy formulation. OGM adds customized services such as analysis of distribution structures by country and review of legal regulations, enabling clients to conduct global business more effectively.

Cosmeca Korea operates based on its subsidiaries in Korea, China, and the United States. In the U.S., it secured a foothold by acquiring Ingledwood Lab, a KOSDAQ-listed company with headquarters and production facilities in New Jersey, in 2018. As of last year, sales distribution by country was 51.1% in Korea, 39.3% in the U.S., and 9.6% in China.

Cosmeca Korea’s performance has been on an upward trend annually. Sales increased from KRW 339.1 billion in 2020 to KRW 396.5 billion in 2021, KRW 399.4 billion in 2022, and KRW 470.7 billion last year, marking a 17.9% growth in the last year alone. Operating profit also jumped from KRW 9.9 billion in 2020 to KRW 49.2 billion last year, a 374.2% increase year-over-year. Notably, in the fourth quarter of last year alone, sales reached KRW 122.7 billion and operating profit KRW 15 billion, achieving the highest quarterly performance since the company’s founding. These figures also met the market consensus estimates.

The background for Cosmeca Korea’s high performance growth can be attributed to the global cosmetics consumption trend diversifying from large-scale cosmetic brands to indie beauty brands. Indie beauty brands are independently operated brands without major capital investment or well-known major brands. Recently, with increased sales on online platforms and social media and changing consumption patterns among the main consumer group of young people, indie beauty brands have been growing.

Accordingly, since 2019, Cosmeca Korea has been conducting customized sales activities to secure various online clients. Additionally, the recent success of K-beauty products has increased preference for Korean cosmetics and the trustworthiness of ‘Made in Korea,’ which has also served as a foundation for Cosmeca Korea’s performance growth.

Looking at the fourth-quarter performance by region, the Korean subsidiary recorded sales of KRW 69.7 billion and operating profit of KRW 7.3 billion, up 17% and 274% respectively from the same period last year. High growth in sales of basic products such as cleansing and an increase in domestic indie brand clients contributed to the performance. Particularly, the diversification of distribution channels into health & beauty (H&B) sectors such as Amazon and Ulta in North America, Olive Young and Daiso in Korea, Don Quijote and Etcos in Japan was effective. Additionally, royalty income of KRW 1.8 billion from subsidiary Ingledwood Lab Korea was reflected in the results. Ingledwood Lab Korea pays 3% royalties based on sales when using prescriptions owned by the headquarters.

The U.S. subsidiary Ingledwood Lab recorded sales of KRW 57 billion and operating profit of KRW 8 billion, marking increases of 39% and 179% respectively year-over-year. Sales of basic products grew 92% driven by large orders of low-priced skincare brands based on Korean subsidiary prescriptions, leading the performance. The Chinese subsidiary posted sales of KRW 14 billion and operating profit of KRW 0.5 billion, turning profitable compared to the previous year. This was due to increased operating rates centered on mud packs and other basic products and improved efficiency by consolidating major factories.

Full Reflection of OTC Product Performance

Cosmeca Korea’s performance growth trend is expected to continue this year. According to financial information provider FnGuide, the consensus for Cosmeca Korea’s sales and operating profit this year is KRW 545.6 billion and KRW 63 billion, representing growth of 16% and 28% respectively compared to last year. Currently, securities firms are revising upward their performance estimates for the first half of the year, so the consensus may rise further.

A notable point this year is the structural growth of low-priced indie brands. The Korean subsidiary of Cosmeca Korea targets new indie brands mainly in the mid-to-low price range and currently has over 500 clients. The U.S. and Chinese subsidiaries are also focusing on adding new clients.

Researcher Baek Seung from Mirae Asset Securities analyzed, “Structural growth of low-priced indie brands is a common factor affecting ODM companies, but Cosmeca Korea’s subsidiary Ingledwood Lab has secured many clients distributed mainly through low-priced channels such as Ulta, marts, and online in the U.S., aligning better with consumer trends. Also, due to the effect of large orders from a few brands, the operating profit margin can be maintained at around 15%.”

Moreover, starting this year, Cosmeca Korea is expected to create a value-up opportunity by fully entering the functional cosmetics market with products such as sunscreen. Functional cosmetics are classified as over-the-counter (OTC) drugs that require certification from regulatory agencies in each country, making entry barriers high. Accordingly, Cosmeca Korea has been expanding its functional OTC business in the U.S. through its subsidiary Ingledwood Lab. As of last year, the functional OTC proportion of Ingledwood Lab is estimated to be around 20%.

Researcher Park Eun-jung from Hana Securities stated, “Requests for OTC development from U.S. clients continue to increase, and currently about 100 projects are underway. This year, requests for OTC development targeting the U.S. market from domestic clients are also continuing, so solid external growth is expected.” Additionally, OTC-related sales in the U.S. market are expected to be fully reflected from the second half of this year, with the upcoming launch of OTC products from indie brand E, a representative Gen Z brand in the U.S.

In China, sunscreen products are also scheduled for launch. Cosmeca Korea began clinical trials for 19 semi-OTC related products including sunscreen in the second half of last year and obtained five approvals in the fourth quarter. These products are planned to be launched in the second quarter of this year.

High Profitability Attracts Institutional ‘Love Calls’

Cosmeca Korea’s financial condition is stable. As of the end of last year, its debt ratio was 79.8%, showing a decreasing trend annually. Cash equivalents have also increased yearly, raising the current ratio from about 130% in 2022 to 158%. As of the end of last year, Cosmeca Korea’s cash equivalents amounted to approximately KRW 52 billion.

Profitability indicators stand out particularly. The return on equity (ROE) of Cosmeca Korea at the end of last year is estimated at 14%, a significant increase from 1.8% in 2022. ROE indicates how much profit is generated relative to invested capital and greatly influences corporate value evaluation. For comparison, competitor Kolmar Korea’s ROE is expected to be around 7% last year.

With solid financial status and high profitability, institutional investors, major players in the stock market, have been showing strong interest. According to the Financial Supervisory Service’s electronic disclosure, the National Pension Service increased its stake in Cosmeca Korea from 9.59% to 12.09% by the end of last year. Additionally, activist fund Truston Asset Management expanded its holding from 6.01% to 8.41% in September last year.

Meanwhile, valuation indicators that assess relative stock value are currently slightly lower than the industry average. According to NH Investment & Securities analysis, Cosmeca Korea’s average price-to-earnings ratio (PER) last year is estimated at 17.6 times, lower than Cosmax (20.7 times), CNC International (19.7 times), and Intercos (23.6 times), and similar to Kolmar Korea (17.1 times). However, this year, while Cosmax and Kolmar Korea’s PERs are expected to be around 10 to 11 times, Cosmeca Korea’s is projected to be about 14 times.