Sales of Cosmetics and Health Functional Foods Brisk
The author is an analyst of NH Investment & Securities. He can be reached at william.ku@nhqv.com. -- Ed.
Despite the Covid-19 crisis, Dongkook Pharm’s healthcare division booked 1Q20 sales of W42.6bn (+33.5% y-y), with the cosmetics business reporting strong growth led by the home shopping channel. We expect the firm’s valuations to re-rate going forward. The company’s shares are currently trading at an attractive 2020E P/E of 12.2x.
At this rate, annual sales of Madeca cream to reach W120bn
Maintaining a Buy rating, we raise our TP on Dongkook Pharm from W90,000 to W115,000. Our TP was calculated by applying a target P/E of 15.0x (previously 12.8x) to 2020E NP (excl minority interests) of W69.1bn. Despite the Covid-19 crisis, the healthcare division is experiencing high sales and OP growth. Full-year sales and OP are projected to climb 11.0% y-y and 20.9% y-y, respectively. We expect the earnings growth to lead to valuation re-rating. In particular, we note that 1Q20 sales of the high-margin Madeca cream rose 60.0% y-y, led by the home shopping channel. Given that channel diversification effects (eg, supply to Olive Young) have yet to be felt in full, cosmetics sales growth should become more prominent in 2H20. For the cosmetics business, we forecast 2020 sales of W119.4bn (+43.7% y-y). The firm’s shares are currently trading at an attractive 12M FWD P/E of 12.2x.
Sales growth brisk at cosmetics and health functional food domains
Dongkook posted consolidated 1Q20 sales of W130.6bn (+18.2% y-y) and OP of W19.3bn (+33.3% y-y; OPM of 14.8%), with sales exceeding our estimate and consensus by 16.9% and 7%, respectively, and OP outshining our forecast and consensus by a respective 29.5% and 13.0%. We note that earnings have been exceeding expectations since 2H19. Despite Covid-19, the growth potential of the cosmetics and health functional food businesses was confirmed. Thanks to stable prescriptions, ethical drug sales amounted to W28bn (+10.7% y-y) and OTC sales came to W30.9bn (+11.2% y-y). Meanwhile, owing to the coronavirus outbreak, the home shopping division continued to post solid growth, and cosmetics business sales reached W26.4bn (+60.0% y-y). Sales of health functional foods also displayed strong growth, led by high demand from the department store channel. Sales at the healthcare division (includes cosmetics and health functional food) totaled W42.6bn (+33.5% y-y). In 2019, the cosmetics business reported record-high sales of W83.1bn (+57.4% y-y); however, this figure is expected to climb further to W119.4bn (+43.7% y-y) in 2020. Accordingly, we raise our EPS estimate for 2020 by 9.4%.