[Click eStock] "Cosmax Earnings Outlook Adjusted Downward, Target Price Lowered"

Shinhan Investment Corp. adjusted its earnings outlook for Cosmax on the 8th, lowering the target price to 150,000 KRW while maintaining a buy rating.

Cosmax's consolidated sales for the fourth quarter of last year were 436.7 billion KRW, and operating profit was 22.5 billion KRW, both falling short of estimates and consensus. The Korean subsidiary's performance was below expectations, and conservative accounting by overseas subsidiaries, including China, increased costs. Sales by subsidiary grew compared to the same period last year: domestic 14%, China 8%, USA 3%, Indonesia 14%, and Thailand 9%.

Domestic sales were expected to increase by more than 20% due to the strength of indie beauty brands but were weaker than anticipated. China, the USA, and Indonesia remained at expected levels. However, on the profit side, a one-time bad debt expense of 8.5 billion KRW was recorded due to conservative accounting for China’s accounts receivable, and non-operating expenses such as interest costs and foreign exchange losses were higher than expected. The reason for the conservative accounting is the maintained concerns over China's consumer economy, which led to an increased allowance ratio for the Chinese subsidiary.

In Korea, both skincare and color cosmetics are steadily increasing, mainly driven by domestic and export orders. Particularly, export customers to Japan appear to be driving growth, and new export customers are steadily being added. Researchers Hyunjin Park and Jieun Joo of Shinhan Investment Corp. judged that "there is no need to raise concerns about domestic performance in the first quarter of this year."

In China, although production volume from the E-Sen Group is being transferred to the JV subsidiary, fortunately, new buyer orders are offsetting sales. By solidifying the sales base for new indie brands based on online channels, it seems feasible to meet the guidance of over 20% growth in Shanghai and around 15% growth in Guangzhou in the first quarter. In the USA, efforts are underway to reduce fixed costs through workforce adjustments. Of this year’s 70 to 80 billion KRW Capex, about half is expected to be used for the expansion of the second Pyeongtaek plant in Korea. External growth centered on domestic export orders is expected to continue for the time being.