[Click eStock] "Amorepacific, Larger-than-Expected Loss in China... Target Price Down"

Target Price Revised Down from 192,000 Won to 163,000 Won

Shinhan Investment Corp. on the 10th downgraded the target price for Amorepacific from 192,000 KRW to 163,000 KRW, citing a larger-than-expected deficit in China. The investment rating was maintained at 'Buy.'

Hyunjin Park, a researcher at Shinhan Investment Corp., said, "The target price was lowered due to downward revisions in the 2024-2025 estimates, reflecting additional deficits in China," adding, "Despite poor performance, the stock remains at a high valuation, so we recommend long-term investment."

Despite increased overseas sales and profits in the U.S. and Southeast Asia, cost issues related to restructuring in China negatively impacted the third-quarter results this year. Researcher Park explained, "Amorepacific's third-quarter sales are expected to reach 975.4 billion KRW, a 10% increase year-on-year, and operating profit to rise 139% to 41.4 billion KRW, aligning with the lowered consensus (average securities firm forecast). However, this is about 20 billion KRW lower than previous estimates due to a larger-than-expected operating loss in China." He added, "The operating loss of the Chinese subsidiary is estimated to exceed 50 billion KRW, including a 20 billion KRW loss related to the return of online inventory in China."

Amorepacific is extensively reorganizing its online and offline channels in China through a comprehensive review of contracts with intermediate suppliers. Researcher Park noted, "The Laneige brand previously improved profitability through business adjustments in China, so we believe there is potential for a turnaround in performance for the current Sulwhasoo brand in China as well," and analyzed, "While operating losses in China are inevitable until the fourth quarter, the deficit is expected to steadily decrease. Attention should be paid to support measures for the Chinese consumer economy."

Cosrx's sales grew by more than 20% year-on-year, but operating profit margin is expected to decline to the high 20% range compared to the first half. Researcher Park said, "This is due to increased marketing expenses, and U.S. sales were somewhat sluggish immediately after Amazon Prime Day in July," but added, "However, both Laneige and Innisfree showed double-digit growth compared to the same period last year, indicating that the U.S. market is relatively strong compared to China."

The stock price is bottoming out. Researcher Park said, "We believe the period when the stock price bottoms out due to reduced deficits in China in the fourth quarter and benefits from China's economic stimulus is not far off."