Beauty Rivals with Diverging Performance Due to Impact on China Business

[Asia Economy Reporter Yujin Cho] Domestic beauty industry rivals are expected to experience mixed fortunes in their annual performance last year due to setbacks in their China operations.

According to the cosmetics industry and FnGuide on the 4th, LG Household & Health Care's consolidated operating profit last year is estimated to be 1.1752 trillion KRW, up 13.08% from the previous year, while Amorepacific's is expected to decrease by 5.52% to 455.4 billion KRW.

If LG Household & Health Care achieves results in line with securities firms' consensus this year, it will set a new record of operating profit exceeding 1 trillion KRW for two consecutive years.

Both companies are expected to continue double-digit growth in sales, but profitability is likely to diverge significantly due to fixed cost issues in their China businesses.

LG Household & Health Care's flagship luxury brand "Whoo" drove growth by performing strongly in duty-free and China export sales, whereas Amorepacific struggled as luxury and mid-range brands suffered from deteriorating profits caused by sluggish traditional offline channels in China.

Whoo became the first single brand in the domestic cosmetics industry to achieve annual sales of 2 trillion KRW last year. The industry expects LG Household & Health Care's China subsidiary sales to increase by 39% year-on-year this year.

The two major cosmetics original design manufacturing (ODM) companies, Kolmar Korea and Cosmax, also experienced mixed results in profitability.

Kolmar Korea posted an operating profit of 122.1 billion KRW on a consolidated basis last year, up 35.67% from the previous year, while its competitor Cosmax recorded an operating profit of 48 billion KRW, down 8.22% year-on-year.

Both companies showed sales growth, but the proportion of sales from low-priced road shop brand clients caused the divergence. Cosmax, which has a high proportion of low-priced road shop brands such as Missha and Tony Moly among its top clients, was hit by the market downturn.

The severity of the performance decline in the China market also had an impact. Cosmax's Shanghai subsidiary, which mainly served offline clients, recorded negative growth, adversely affecting profitability.

Researcher Hyoju Son of Hanwha Investment & Securities pointed out, "Recently, the Chinese cosmetics market has seen a slowdown in growth of first-generation brands centered on offline channels, while second-generation brands focused on online channels are growing rapidly. The Shanghai subsidiary, which grew alongside the first-generation brands, could not avoid this trend."

Despite adverse effects related to the boycott and some sluggishness in its China business, Kolmar Korea's pharmaceutical division, boosted by the strong performance of its subsidiary CKM (CJ Healthcare), acquired in Q3 2018, played a key role in improving profitability.

This content was produced with the assistance of AI translation services.