Notable Store Efficiency Improvement
The author is an analyst of NH Investment & Securities. She can be reached at mj27@nhqv.com. -- Ed.
With group-wide efforts to improve channel efficiency beginning to yield tangible results, AmoreG is expected to book a y-y sales rebound in 2H21. As the firm’s relative valuation merit versus AmorePacific has been increasing, attempts to narrow the widened valuation gap should sustain going forward.
Relative valuation merit vs AmorePacific strengthening
Amore’s group-wide drive to improve channel efficiency has finally begun to yield tangible results. With AmoreG’s EV likely to recover mainly thanks to the rising value of AmorePacific, margin improvement should also speed up from 2Q21 as not only AmorePacific but also Innisfree and Aestura are to see positive y-y sales growth from 2Q21. Noting: 1) the faster-than-expected changes underway at individual brands; and 2) AmoreG’s widening relative valuation merit versus AmorePacific, we believe that the valuation gap between AmoreG and AmorePacific will gradually narrow going forward.
Notable store efficiency improvement
The decline in the number of roadshop cosmetic stores has been accelerating due to Covid-19. Against this backdrop, while striving to remove channel inefficiency, Innisfree and Etude have also shifted their channel focus towards e-commerce. We point out that a decline in offline roadshops’ sales contribution to the 10~20%-range has resulted in significantly eased fixed cost burden. With the number of roadshop stores sharply reduced, greater outdoor activities amidst the easing Covid-19 crisis should translate into accelerating per-store sales growth, thus pushing up overall earnings momentum at AmoreG.
Sales to rebound in 2H21
We expect AmoreG’s consolidated sales and OP to improve by a respective 20.8% y-y and 461.5% y-y in 2H21. In addition to AmorePacific likely booking sound earnings improvement throughout 2021, Innisfree and Etude are to see significant improvement in OPM (+8.2%p y-y and +13.4%p y-y, respectively) on the withdrawal of loss-making stores and reduced marketing expenses.