Cosmetics

The author is an analyst for Shinhan Securities. She can be reached at hpark@shinhan.com -- Ed.

1Q23 operating profit meets expectations

Clio Cosmetics posted consolidated operating profit of KRW5.2bn (+44% YoY) on sales of KRW75bn (+14% YoY) for 1Q23, meeting our estimate and the market consensus. Sales from the domestic health & beauty channel (Olive Young, etc.) increased 37% YoY, driving up company-wide earnings. Sales growth was recorded in Southeast Asia, up 107% YoY to KRW3.8bn, and in North America, up 73% YoY to KRW5.3bn. Although the pace of global sales growth slowed due to a weak performance in China and Japan, the diversification of markets is seen as a positive. The company has delivered stronger growth than its small/mid-cap cosmetics peers in Southeast Asia and North America, with sales rising on Shopee, Lazada, and Amazon.

Robust growth of cosmetics brands other than Clio is noteworthy. Goodal and Peripera sales jumped 50% and 75% YoY, respectively. The diversification of brands is also a positive. By product category, lip tints and functional serums are the growth drivers.

Even growth of brands across different markets

In 2Q23, Clio Cosmetics continues to enjoy earnings growth in the domestic, North American, and Southeast Asian markets. Earnings in Japan have yet to recover on a YoY basis, but seems to have rebounded on a QoQ basis. Goodal is generating strong sales across all regions, led by its mainstay green tangerine vitamin C serum for dark spots. Peripera earns a large portion of sales from the US and Southeast Asia, where its lip products are very popular.

The company plans to expand its North American sales channel from Amazon to Walmart and Target in the mid-to-long term. The upcoming launch of products on Amazon Japan should help improve earnings in Japan. Amid the transition of COVID-19 from pandemic to endemic, rising demand for makeup products is well reflected in the company’s solid sales at home and abroad.

Small/mid-cap top pick with ample growth potential

Clio Cosmetics recorded strong growth in 1Q23, while peers fell short of expectations with their earnings weighed down by weak duty-free sales and slow recovery of China’s demand. Share valuation levels are burdensome, but we keep Clio Cosmetics as our small/mid-cap top pick in view of ample growth potential for earnings going forward.

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