Kolmar Korea
The author is an analyst for NH Investment & Securities. She can be reached at jiyoony@nhqv.com -- Ed.
Kolmar Korea’s 1Q23 results proved weaker than expected due to both a rise in the non-consolidated COGS ratio and sluggish earnings at subsidiaries. However, order growth expectations remain valid ahead of peak seasonality for sunscreen product orders in 2Q23. COGS ratio has stabilized since April, and a sales recovery at Yonwoo has been underway since March.
Wuxi subsidiary begins turnaround
Although Kolmar Korea’s 1Q23 profitability proved somewhat disappointing, order growth should accelerate in 2Q23 in line with peak seasonality for sunscreen products. The domestic arm showed mid-teen % order growth in April, and the Wuxi subsidiary also continued a high order growth trend in March, proving that its quarterly profit level is sustainable. We maintain a Buy rating and a TP of W52,000 on Kolmar Korea, believing that earnings contributions from HK inno.N and Yonwoo will increase gradually in 2H23.
1Q23 review: Records disappointing domestic profitability
Kolmar Korea announced 1Q23 consolidated sales of W487.7bn (+19% y-y) and OP of W12.1bn (-7% y-y), with OP arriving below consensus (W21.3bn).
The company recorded domestic sales of W201.8bn (+12% y-y) and OP of W13.5bn (-6% y-y). Monthly growth sustained (+3% in January, +16% in February, +13% in March), and improvements in top-10 customer mix and sunscreen product orders (W45.5 bn, +52% y-y) stood out. But, cost burden (cost W3.1bn: incentives for production personnel/outsourcing service expenses, SG&A expenses W0.7bn: commissions paid) is being aggravated.
Overseas: ① Sales of W33bn in Wuxi (+5% y-y), OP of W0.6bn (TTP y-y) were achieved. Utilization rate improved to 40% on a surge in orders for sunblock products from a local customer, leading to a turn to quarterly profit for the first time in the subsidiary’s history. ② The firm’s North American domain registered sales of W6.5bn (+27% y-y) in the US and W12bn (-2% y-y) in Canada. Losses for the US business expanded to W600mn on a heftier R&D labor cost burden.
HK inno.N K-Cap’s earnings missed expectations due to both higher R&D costs and Condition marketing expenses stemming from a technology transfer to a US partner. Yonwoo turned to the red on delayed earnings for major domestic/American clients.