[Click eStock] Cosmax Reflects Bad Debt Expenses... Target Price Lowered to 200,000 Won

On the 13th, Korea Investment & Securities downgraded the target price of Cosmax from 250,000 KRW to 200,000 KRW, reflecting sluggish performance of its Chinese subsidiary and bad debt write-offs, a 20% decrease. However, the investment rating was maintained as 'Buy' due to expectations of gradual stock price recovery.

Kim Myung-joo, a researcher at Korea Investment & Securities, stated in the report, "We incorporated bad debt write-offs, which are likely to continue, into our earnings estimates and also reflected the slower-than-expected situation of the Chinese subsidiary. Over the past month, panic selling occurred for Cosmax due to concerns about its China business. Based on past experience, when a sector's business conditions remain unchanged but a company is oversold, it often presents a buying opportunity."

Cosmax's consolidated sales for the second quarter of this year reached 551.5 billion KRW, and operating profit was 46.7 billion KRW, with operating profit falling 19% short of both market expectations and our estimates. Although the results were below market expectations, Cosmax's stock price rose after the earnings announcement. This is interpreted as investors' concerns being much lower than the actual consensus.

Researcher Kim explained, "Concerns about Cosmax's China business grew extremely due to China's slow economic recovery and the possibility of U.S. tariffs on China. However, the actual downturn in the China business was not as severe as the market feared. Conversely, the domestic subsidiary, which was not a major concern, recorded solid sales of 348.2 billion KRW but showed somewhat weak operating profit of 34.5 billion KRW."

Regarding Cosmax's earnings, alongside the China business, the market was also concerned about bad debt write-offs (accounted for under selling and administrative expenses). In the second quarter, bad debt write-offs amounted to 14 billion KRW on a consolidated basis. Researcher Kim noted, "Ironically, the bad debt write-offs of the Chinese subsidiary were not large compared to concerns, whereas the domestic subsidiary recorded significant write-offs. We believe that some portion of the write-offs in the Korean subsidiary during the second quarter is likely to continue in the future, and we have reflected this in our future earnings estimates."

This content was produced with the assistance of AI translation services.