3Q21 Sales and OP to Turn to Positive Growth
The author is an analyst of NH Investment & Securities. She can be reached at mj27@nhqv.com. -- Ed.
Kolmar Korea’s 3Q21 OP is forecast to climb 20.0% y-y. Earnings improvement at the firm’s main cosmetics business is to continue, with the domestic cosmetics division returning to positive growth and robust growth continuing at the Wuxi subsidiary. Cooperation is also being enhanced with high market share clients. Given such positives, Kolmar Korea’s current share price looks to represent excessive undervaluation.
Time to focus on earnings recovery at cosmetics division
We maintain a Buy rating and TP of W60,000on Kolmar Korea. Despite its heavy dependence on captive clients and weakness in terms of the portfolios of domestic and overseas customers compared to competitors, the firm is expanding its cooperation with high market share clients. We note that the domestic cosmetics division has returned to positive growth. It is also positive that the Beijing subsidiary’s sales have bottomed out and that the Wuxi subsidiary continues to show high growth. Against this backdrop, we forecast that the domestic subsidiary will maintain stable profitability and that the Chinese subsidiaries will secure investment returns from next year. The US subsidiary (PTP) is expected to bring earnings improvement through aggressive sales activities and investment in 2H21, as well as via the acquisition of remaining stake.
While Kolmar Korea has thus far had to focus on non-cosmetics business restructuring (eg, the sale of its pharmaceutical division and the listing of HK inno.N), the time has now come to concentrate on its main business.We expect Kolmar Korea to display healthy earnings in line with its strong fundamentals as a major global ODM cosmetics player.
3Q21 sales and OP to turn to positive growth
We forecast that Kolmar Korea will book consolidated 3Q21 sales of W384.8bn (+21.1% y-y) and OP of W22.7bn (+20.0% y-y).
The domestic cosmetics division is projected to record 3Q21 sales of W154.1bn (+11.5% y-y). Despite sluggish sales to its largest customer, the firm is to recover to double-digit growth on continued sales expansion at other customers. The Chinese Wuxi subsidiary is to post 3Q21 sales of W29.2bn (+133.6% y-y), thanks to increased sales to existing customers and the contribution of new online-focused orders. At the Beijing subsidiary, 3Q21 sales are forecast at W6.5bn (+47.7% y-y) on a strengthening of its own sales network. Inno.N is to post sales of W183.5bn (+22.3% y-y). In 3Q21, OPM is inevitably to decline (y-y) due to low-margin vaccine business, and a portion of 2Q21 one-off expenses is likely to be reflected.