[Click eStock] Amorepacific, Weak Performance in China... Target Price Downgraded

From 160,000 Won to 140,000 Won

Hanwha Investment & Securities lowered the target price for Amorepacific by 13%, from 160,000 KRW to 140,000 KRW on the 7th, citing expected poor performance of its Chinese subsidiary. The investment rating was maintained as a buy. Amorepacific's closing price the previous day was 115,800 KRW.

In a report released that day, Han Yujeong, a researcher at Hanwha Investment & Securities, stated, "We have lowered the earnings forecast by reducing the performance outlook for the Chinese subsidiary, and accordingly, we are revising the target price downward. The most important assumption that the reflection of large-scale losses in China will be completed in 2024 has been confirmed, and the growth trend overseas outside China, including COSRX, will determine the future stock price direction."

Amorepacific's consolidated sales for the fourth quarter of last year are expected to be 1.055 trillion KRW, up 13.9% year-on-year, and operating profit for the same period is expected to be 80.8 billion KRW, up 290.6%, in line with the consensus (operating profit of 82.2 billion KRW).

The researcher noted, "Excluding the effect of the COSRX acquisition, sales are estimated at 878.8 billion KRW and operating profit at 31.4 billion KRW," adding, "For reference, the fourth quarter of 2023 reflected the largest quarterly operating loss in China."

In Korea, sales were defended at a level down 3.2% compared to the previous year due to a decline in duty-free sales and growth in major channels, but in China, sales fell sharply due to the absence of major online channels and the withdrawal of Laneige offline direct stores. ASEAN sales increased by 19.6% due to the COSRX acquisition effect, and EMEA (Europe, Middle East, and Africa) and North American sales increased by 320.8% and 118.7%, respectively, driven by high growth centered on Laneige and the COSRX acquisition effect.

The researcher explained that it is currently difficult to predict the exact timing of the turnaround for the Chinese subsidiary. According to Hanwha Investment & Securities, from 2024, Amorepacific's overseas sales are ranked in the order of ASEAN, Americas, China, and EMEA.

He analyzed, "Due to the consolidation of COSRX, worsening performance in China, and strong sales of Laneige in the Americas and EMEA, considering that it is expected to take considerable time to enhance the brand value of Sulwhasoo in the luxury market and that offline sales are expected to decline sharply due to the streamlining of offline stores of masstige brands, it is difficult to definitively state the timing of the turnaround for the Chinese subsidiary."