Cosmax, Both Stock Price and Profits Decline... "Why Is It Said the Industry Is Doing Well?"

Significant Decline Compared to Other ODMs
Concerns Over Costs Related to Some Clients
Uncertainty in Improvement of Chinese Consumption

Despite the strong performance of K-Beauty, Cosmax's stock price is weak. It is interpreted that the bad debt write-off due to delayed collection of receivables related to a specific client is having an impact. Industry experts analyze that the risk of accounts receivable from some domestic customers may continue in the second half of the year.

According to the Korea Exchange on the 4th, Cosmax, a leading company in cosmetics original design manufacturing (ODM), recorded a closing price of 124,500 KRW the previous day. It has fallen 26.76% over the past three months. This is a poor performance compared to other ODM companies in the cosmetics sector such as Cosmecca Korea (35.88%), C&CI International (17.29%), and Korea Kolmar (8.55%).

Due to Cosmax's weak stock performance, securities firms have consecutively lowered their target prices. Korea Investment & Securities adjusted its target price from 250,000 KRW to 200,000 KRW, Yuanta Securities from 240,000 KRW to 168,000 KRW, NH Investment & Securities from 230,000 KRW to 200,000 KRW, and Hyundai Motor Securities from 230,000 KRW to 180,000 KRW.

This adjustment in the securities firms' outlook is interpreted as a result of poor earnings. Cosmax posted consolidated sales of 551.5 billion KRW and operating profit of 46.7 billion KRW in the second quarter. The operating profit fell 18% short of market expectations. In particular, bad debt write-offs under selling and administrative expenses had a negative impact.

For the domestic corporation, sales did not decline. On the contrary, sales grew 25% year-on-year, following the favorable trend in the cosmetics industry. However, profitability was the issue. Seong-i Baek, a researcher at Mirae Asset Securities, analyzed, "Despite the increase in sales, operating profit margin fell by 1 percentage point year-on-year to 9.9% due to the impact of bad debt write-offs," adding, "Costs were recognized significantly as the collection of receivables from some customers was delayed."

Kim Myung-joo, a researcher at Korea Investment & Securities, also noted, "The domestic corporation, which was not a concern, showed some weakness," and pointed out, "Ironically, the amount of bad debt write-offs in the Chinese corporation was not as large as feared, whereas the domestic corporation recorded a large write-off amount." He further predicted, "Some of the write-off amounts are likely to continue in the future."

Along with the bad debt write-off issue related to a specific client, the outlook for Chinese performance is also unfavorable. Park Hyun-jin, a researcher at Shinhan Investment Corp., said, "Concerns about Chinese performance are resurfacing due to the absence of a recovery in Chinese consumption," adding, "It is premature to expect an upward revision of Chinese performance forecasts in the third quarter." He advised, "Some patience is needed until concerns related to China ease."