AmorePacific, Securities Firms Say "Disappointing" Despite Earnings Rebound

Q3 'Earnings Surprise'
Disappointing Performance of COSRX Acquired in 2021
Utilizing Stock Volatility Period as a Trading Opportunity

Despite Amorepacific posting solid results in the third quarter, the stock price outlook from the securities industry remains bleak. Analysts say that Amorepacific's recent 'earnings surprise' was largely driven by the launch of new products from its main brands and expansion into new markets such as Europe, and they emphasize the need to watch whether this positive performance trend continues into the fourth quarter. However, they advise using any short-term stock price volatility as a trading opportunity.

Amorepacific recorded an operating profit of 65.2 billion KRW in the third quarter of this year, a 277.7% increase compared to the same period last year, and sales of 977.2 billion KRW, up 9.9% year-on-year. The operating profit exceeded market expectations by 51.8%, delivering a surprise performance.

Researcher Kim Hyemi of Sangsangin Securities explained, "Even after excluding the effects of incorporating COSRX, which began consolidating from May, the company’s own performance improved significantly due to improved domestic profitability, a smaller-than-expected loss in China, and high sales growth in Western markets."

Despite the strong third-quarter results, the securities industry gave a somewhat disappointing evaluation and consecutively lowered target stock prices. Korea Investment & Securities adjusted the target price down by 15% to 170,000 KRW, citing a slowdown in COSRX’s growth rate.

Amorepacific acquired a stake in COSRX in 2021. COSRX is a low-irritant skincare brand for sensitive skin established in 2013. It has expanded into over 140 countries including North America, Southeast Asia, and Europe, with overseas sales accounting for more than 90% of total sales. Notably, sales in Western markets make up more than half of total sales.

Mirae Asset Securities mentioned a slowdown in overseas growth rates, including in the U.S., and lowered Amorepacific’s target price from 200,000 KRW to 180,000 KRW. Sangsangin Securities also reduced its target price from 200,000 KRW to 185,000 KRW.

Researcher Baesong of Mirae Asset Securities said, "Since the COSRX restructuring efforts began to impact from this quarter, the timing for re-entering a high-growth phase remains uncertain. Given the lower overseas growth rates, we are lowering the appropriate multiples and target prices. However, we expect flexible momentum when overseas growth rates improve."

NH Investment & Securities lowered its target price from 180,000 KRW to 155,000 KRW, stating that the growth of COSRX, the growth engine, fell short of expectations. It also revised down COSRX’s sales growth rates for this year and next year by 27% and 10%, respectively, compared to the same period last year.

The securities industry sees the recovery of COSRX’s sales as the key factor for Amorepacific’s stock price to rise. Researcher Kim Myungju of Korea Investment & Securities noted, "For a sustained stock price increase, a new story that can lead to COSRX sales recovery or valuation recovery is necessary."

Kim also added, "However, due to the earnings surprise seen for the first time in a while and expectations for improvement in the China business, short-term stock price volatility is expected, and we recommend using this as a trading opportunity."

Despite the downward revisions of target prices by securities firms, on the 1st, Amorepacific’s stock closed at 120,300 KRW, up 3.17% (3,700 KRW) from the previous trading day. The stock price had recovered to the 200,000 KRW range in May but has since fallen back to the 120,000 KRW range. The stock price is now down more than 40% from its year-to-date high.