[Click eStock] "The Key to 4Q Performance Is Export Ratio and Customer Diversification"

Meritz Securities analyzed that the key points of the 4th quarter earnings are the export ratio and customer diversification.

It is the 4th quarter earnings season. Investors will look at the 4th quarter results to gauge the extent of earnings improvement and earnings visibility for each company in 2025. The 4th quarter earnings landscape changed abruptly starting in December. This was because consumer sentiment in December plummeted from 100.7 in November to 88.4 due to political instability leading to martial law declaration and impeachment. Major offline cosmetics retailers such as Olive Young and Daiso have tightened inventory management, and there is a mood of reducing inventory to prepare for potential future consumption sluggishness. Accordingly, it is understood that several brand companies’ December sales were significantly impacted.

On the other hand, overseas exports remain strong. Cosmetic exports in the 4th quarter increased by 28% compared to the same period last year, which is the highest figure among all quarters in 2024. This number dispels concerns about the slowdown of K-beauty’s global momentum, as export regions are expanding from Japan and the United States to Europe and the Middle East. The rise in exchange rates has further amplified the export growth effect, i.e., improvements in sales and margins.

Ultimately, the 4th quarter earnings of cosmetics companies are likely to be closely linked to the clear divergence between domestic and export indicators. Earnings differentiation is expected based on three main criteria. First, it is advisable to view the earnings of companies with a high proportion of domestic sales conservatively. Attention should be paid to how these companies managed to withstand earnings pressure amid domestic sluggishness. Second, by value chain, brand companies likely suffered the most damage. Especially, companies with a high proportion of mid-to-low-priced sales with low brand loyalty probably underperformed compared to initial expectations. Although raw material and ODM companies experienced a temporary decline in orders, they had many deferred volumes, so they could pass through the December order decline without major issues. Of course, if this decline in consumer sentiment and domestic sluggishness continues, raw material and ODM companies will inevitably be affected in the first quarter. Third, among ODM and raw material companies, those with a high concentration of large customers need to be cautious. The fact that the overall performance is influenced by the earnings and order fluctuations of some large customers is considered a factor that reduces earnings visibility.

Researcher Park Jong-dae of Meritz Securities forecasted that "Cosmax will be the company expected to exceed market expectations." He expects that Kolmar Korea, Silicon2, Permtek Korea, and C&C International will meet market expectations, but he viewed C&C International negatively because it is experiencing earnings decline. He also noted that I Family SC and VT have little coverage from securities firms, so consensus has little significance. The company assessed Clio as the most underperforming. Permtek Korea has already reached a fair stock price, and Cosmax and Silicon2 are expected to continue their stock price momentum.