[This Week's Industry Insight] Permtek Korea Emerges as a Leading Player in 'K-Beauty Packaging' in Korea

Cosmetics Slump but Solo Growth Amid COVID-19
Sales Triple in 8 Years Thanks to K-Indie Brand Popularity
Record High Performance Driven by Expanded Customer Base
Strong Financial Health Maintained Despite Expansion Investment

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As the popularity of ‘K-Beauty’ rises in the global premium cosmetics market, cosmetics packaging companies?the ‘containers’ that hold cosmetics?are also enjoying a boom. In particular, the growth speed of Permatech Korea, which supplies containers to domestic indie brands, is remarkably fast. It has even recently surpassed the performance of Yeonwoo, the top player and a subsidiary of Kolmar Korea.

Rapid Growth Alongside Indie Brands... Sales Tripled in 8 Years

Permatech Korea is a cosmetics container manufacturer established in 2001. In its early days, it produced and sold various plastic containers but has since transformed into a company specializing in cosmetics and pharmaceutical containers. It specializes in manufacturing containers such as cosmetic pumps, containers, tubes, compacts, droppers, and sticks. Centered on the pump business, Permatech Korea has subsidiaries including Buguk TNC, which handles the tube business, and Jallon Natural, which manages the dry product business. The sales proportions of each business are approximately 72%, 25%, and 3%, respectively.

Recently, sales have been rapidly growing alongside the popularity of domestic emerging indie brands. Consolidated sales, which were just over 100 billion KRW in 2016, are expected to exceed 300 billion KRW this year. This figure far surpasses analysts’ forecasts. Even during the COVID-19 pandemic, sales continued to grow, tripling over eight years.

In the third quarter of this year, despite it being an off-season, sales exceeded those of the second quarter. Eunjeong Park, a researcher at Hana Securities, said, “Permatech Korea’s pump sales recorded the highest quarterly performance ever, and for the first time since its founding, third-quarter sales in the off-season surpassed second-quarter sales in the peak season,” adding, “The sales growth trend is expected to continue for some time.”

Maintaining a double-digit operating profit margin, Permatech Korea also outperforms competitors in terms of profitability. Last year, its consolidated operating profit margin approached 12.4%. Considering that most other cosmetics container manufacturers have single-digit profit margins, this is regarded as a notably high level of profitability.

This is the result of strategically increasing the proportion of self-produced mold products. By using self-produced molds, containers made through mass production can be slightly modified in design and supplied to various cosmetic brands. A representative example is the recently popular UV protection ‘sun stick pump container.’ The same size and shape of the pump is supplied with different labels for each brand. An industry insider commented, “Self-produced molds are cost-efficient and advantageous for increasing the profitability of container manufacturers.”

Growth Continues with Expansion of Customer Base and Orders

With an expanding customer base and increasing orders, growth is expected to continue for some time. Following the COVID-19 pandemic, domestic indie brands have become popular, continuously expanding Permatech Korea’s customer base. The company has sustained growth by continuously securing orders for product containers from notable brands such as Modamoda, known for its hair dye shampoo; Gahi, which caused a multi-pharm craze; Clio; and Room & Hyang. Supply volumes to Carver Korea, a subsidiary of Unilever, are also steadily increasing.

Recently, Permatech Korea opened a North American office to target the North American market, where K-Indie brands are gaining popularity. An industry insider expressed expectations, saying, “Permatech Korea has a diverse product lineup and can develop containers suited to local trends, supplying various containers not only to domestic brands but also to local brands.”

To respond to the increase in orders, production facilities are also continuously expanding. Currently, the company is pushing forward with the expansion of its 4th factory, aiming for completion in July next year and operation starting in September. Its subsidiary Buguk TNC is expanding its tube line, aiming for completion this month and operation early next year. Once the expansion is complete, the supply speed will increase, creating a virtuous cycle leading to further order growth.

Si-on Kang, a researcher at Korea Investment & Securities, evaluated, “Permatech Korea is actively responding to increasing orders by gradually expanding its workforce and equipment,” adding, “Usually, the third quarter is an off-season for cosmetic containers, but currently, there is a high order flow with no off-season.”

Strong Cash Flow Enables Debt-Free Policy... Excellent Financial Soundness

Permatech Korea maintains a very stable financial structure based on abundant cash flow. As of the end of June this year, its consolidated total borrowings amounted to only 24.5 billion KRW, which is less than its annual operating profit. The net borrowings, excluding cash equivalents from total borrowings, stand at -77 billion KRW. Since 2017, the company has maintained a state where cash equivalents exceed borrowings, effectively remaining debt-free for eight years.

Even with large-scale investments in production line expansions, the possibility of financial instability is low. Due to new factory expansions, capital expenditures (Capex) exceeded 30 billion KRW in the first half of this year, significantly higher than in previous years. However, the investment scale is sufficiently covered by the cash on hand. As of the end of the first half of this year, cash equivalents exceed 100 billion KRW.

Once the expansion is completed in the first half of next year, production volume will increase by 30%. This means sales and profit growth rates could accelerate accordingly. An industry insider predicted, “The production facilities are being expanded to reduce bottlenecks caused by surging orders, and once the expansion is complete, cash flow will generate returns exceeding the investment amount within a few years.”

Attractiveness of Undervalued Stock Price Highlighted

The stock price outlook is also positive. Permatech Korea’s stock price rose from about 14,000 KRW last year to 59,000 KRW in August this year. Since August, it has undergone some correction and recently fluctuates between 32,000 and 39,000 KRW. With continued performance growth and an expected jump-up in results due to upcoming expansions, expectations for a stock price rebound have increased.

In addition to growth potential, the stock is relatively undervalued compared to peers, indicating significant upside potential. Permatech Korea’s price-to-earnings ratio (PER) is around 17 times, undervalued compared to the industry average exceeding 20 times. Although the PER suggests about 20% undervaluation, considering recent profit growth rates, some analyses argue the stock is even more undervalued.

Major financial investor VIP Asset Management continues to increase its stake. Recently, it raised its shareholding from 6.92% to 8.60% through on-market transactions. VIP Asset Management first disclosed a large stake at the end of last year with a shareholding above 5% and has been steadily increasing its holdings this year.