Cosmetics Stocks See Improved Earnings,
But Share Prices Retreat
Intensified Market Concentration Raises
Challenges for Long-Term Investors
As the first half earnings season arrives, more retail investors are shedding tears over the "sell-on-good-news" phenomenon, a chronic issue in the domestic stock market.
After the Q1 earnings announcements this year, 'K-Beauty' and 'K-Food' trends spread like wildfire in the Korean stock market. Silicon Two and Samyang Foods revealed earnings that exceeded market expectations, drawing attention to these sectors as leading industries. News spread from the U.S. that domestic brand cosmetics, Buldak Bokkeum Myun, and frozen gimbap were selling out, prompting not only individual investors but also institutional investors to accumulate related stocks.
Analysts covering cosmetics and food & beverage sectors at domestic securities firms eagerly issued optimistic forecasts. Silicon Two's stock price rose 240% compared to just before the Q1 earnings announcement in about a month. The stock, which had hovered around 15,000 won, surpassed 50,000 won. Samyang Foods' stock price also jumped over 100% within a month after releasing its Q1 earnings. During the same period, the food & beverage sector index rose about 30%, while the KOSPI increased by only 0.4%.
Even as the seasons changed, the popularity of K-Beauty and K-Food overseas remained strong, and investors expected good earnings from cosmetics and food & beverage companies. Silicon Two achieved sales of 181.4 billion won and operating profit of 38.9 billion won in Q2, up 132% and 275% respectively from the same period last year. Operating profit also increased 101% compared to 19.3 billion won in the previous quarter. However, the stock price fell nearly 5% on the day of the earnings announcement.
Earlier, VT disclosed its Q2 earnings on the 12th. Sales and operating profit rose 52% and 131% year-on-year, respectively. The improvement was driven by the popularity of cosmetics in Japan. Despite this, VT's stock price dropped 11% the day after the announcement. Over the past month, individuals purchased VT shares worth 18.3 billion won, recording an unrealized loss rate of 10%.
Among cosmetics companies, the largest player, Amorepacific, reported earnings below expectations. Its Q2 operating profit was only 4.2 billion won, about 6% of the market expectation of 69.5 billion won. The stock price plunged 25% the following day. Currently, Amorepacific's stock price has fallen back to the level before the Q1 earnings announcement. The stock has dropped 41.7% from its yearly high. Individuals who bought shares worth 144.5 billion won in the past month are facing a 16% loss relative to their principal.
Individuals who invested in the cosmetics sector, which led the domestic stock market in the first half of this year, expected further gains after the Q2 earnings announcements. They viewed the decline in major cosmetics stocks ahead of the Q2 earnings as a buying opportunity. However, once the results were revealed, disappointing sell-offs followed.
Since the beginning of this year, individual investors have not been smiling in the domestic stock market. This contrasts with the significant profits made by investing in the secondary battery sector in the first half of last year. After the sharp rise in the secondary battery sector last year, concentration in the domestic stock market intensified. This year, amid inflation concerns and recession forecasts, market volatility has increased. Along with the AI boom, overseas investment by Korean retail investors has grown. The Korea discount (undervaluation of the Korean stock market) phenomenon persists.
While the KOSPI has fallen 1.3% this year, the U.S. Dow Jones Industrial Average and Nasdaq indices have risen 5.5% and 18.3%, respectively. The continued undervaluation of the domestic stock market inevitably weakens the capital-raising function of listed companies. Individual investors are hoping the government will actively implement value-up programs and postpone the introduction of financial investment taxes.
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