Cosmax
The author is an analyst for NH Investment & Securities. She can be reached at jiyoony@nhqv.com -- Ed.
Cosmax recorded solid 1Q23 sales for both Korea and SEA. Despite a heightened cost burden since 2Q22 amid intensifying inflation, leverage effects are anticipated from 2Q23 in response to sales expansion. The ODM portion is widening and fixed cost burden is easing in the US, signaling that a strengthening in fundamentals is underway.
US domain starts to improve
Maintaining a Buy rating, we raise our TP on Cosmax by 15% to W115,000. We cut our valuation discount by 5%p compared to our previous assumption, noting that the sales portions for global/indie brand orders and ODMs are on the rise. In fact, the portion of color cosmetics in Korea (non-consolidated) in 1Q23 was 46% (+4%p y-y), and base/point makeup orders have been rising sharply since March. Moving ahead, US earnings improvement is to exceed beyond current market expectations on a wider ODM portion for global clients (+20%p) and fixed cost reduction.
1Q23 review: Showing sales growth for both Korea and SEA
Cosmax announced 1Q23 consolidated sales of W403.3bn (+1% y-y) and OP of W13.8bn (+1% y-y), with OP topping consensus (W12.2bn).
The domestic arm (non-consolidated) booked sales of W243.4bn (+19% y-y) and OP of W13bn (+35% y-y). Despite sales growth backed by domestic H&B store recovery, exports to Japan, and ASP hikes, cost burden remained a factor due to raw material price hikes. Bad debt costs of W3.4bn (related to online/indie brands) were reflected.
Overseas: ① China sales of W122.4bn (-18% y-y) and NP of W3.6bn (-66% y-y). Sales growth has been steep since March, and Guangzhou earnings growth is benefiting from low-base effects in addition to new orders. ② US sales of W27.1bn (-40% y-y) and NP of W-13.2bn (losses narrowing y-y). With Ohio subsidiary relocation and auditing completed in April, it has been under operation since May. One-off expenses totaled W1bn (retirement benefit provision/liquidation expenses), but operating income was helped by a lower fixed cost burden. ③ Indonesia/Thailand sales of W19.2bn (+34% y-y)), OP of W5.1bn (+82% y-y), NP of W3.4bn (+148% y-y) and W0.7bn (losses narrowing y-y), with client and region expansion sustaining.