Pulp Prices and Exchange Rates... 'Mona Lisa's Uneasy Smile'

Stock Price Rises 57% This Year Amid Mask Shortage
Product Cost Comprises 40-50% Raw Material Expenses
Profitability Depends on Pulp Price Fluctuations

[Asia Economy Reporter Hyungsoo Park] Monalisa was established in October 1977 and produces hygiene paper products such as toilet paper, wet wipes, diapers, and masks. Last year, on a separate basis, it recorded sales of 118 billion KRW, operating profit of 2.8 billion KRW, and net profit of 2.8 billion KRW. Compared to the same period last year, sales increased by 4.4%, and operating and net profits turned positive.

According to last year's third quarter report, Monalisa's mask sales amounted to 3.5 billion KRW, an increase of about 59.2% compared to the same period last year. Previously, Monalisa launched the 'Smile Yellow Dust Fine Dust Mask' in January 2016, and in February last year, introduced the 'Smile Yellow Dust Fine Dust Disposable Mask (KF94)'.

This year, the COVID-19 pandemic caused a mask shortage. In the stock market, the value of mask manufacturers including Monalisa rose. Monalisa's stock price increased about 57% from 3,630 KRW at the end of last year to 5,700 KRW on the 10th. However, some in the financial investment industry point out that the stock price rise is excessive because mask sales do not constitute a large portion of Monalisa's total sales.

Monalisa's profit size actually depends on the prices of major raw materials such as pulp and the won-dollar exchange rate. Raw material costs account for 40-50% of Monalisa's product costs. The ratio of pulp to paper products is about 7 to 3. From 2017 to 2018, China restricted non-wood pulp production. Demand for wood pulp surged, and wood pulp prices rose from 500 USD per ton in 2016 to about 750 USD per ton in 2018. As the price of wood pulp, which accounts for more than 70% of Monalisa's raw materials, soared, profitability deteriorated. Monalisa's operating profit decreased by about 35% from 8 billion KRW in 2016 to 5 billion KRW in 2017. During the same period, the operating profit margin fell from 6.2% to 4.2%. In 2018, it recorded an operating loss of 3 billion KRW, turning to a deficit. From the fourth quarter of 2018, pulp prices slightly rebounded, and Monalisa recorded an operating profit margin of 2.3% last year.

The prolonged COVID-19 situation and the depreciation of the Korean won are burdensome factors. On the 9th, in the Seoul foreign exchange market, the won-dollar exchange rate closed at 1,204.2 won per dollar, up 11.9 won from the previous trading day's closing price. Since pulp must be imported, it is sensitive to exchange rates.

Despite the deterioration in profitability, the financial structure is solid. As of the third quarter of last year, the debt ratio was only 18%. Current liabilities amount to 11.4 billion KRW, including borrowings of 500 million KRW. Current assets, including cash and cash equivalents of 6 billion KRW and financial institution deposits of 3 billion KRW, total 39.8 billion KRW.

Monalisa's largest shareholder, Morgan Stanley Private Equity (MS PE), is selling shares on the market amid the stock price surge. MS PE sold a total of 5.49 million shares of Monalisa in three transactions on the 3rd, 4th, and 20th of last month. MS PE's stake in Monalisa decreased from 66% (24.14 million shares) to 50.99% (18.65 million shares). It appears that MS PE took advantage of the stock price surge and trading volume explosion caused by the COVID-19 situation to sell shares. By selling 15% of its stake, it secured 40 billion KRW. The average selling price per share was 7,230 KRW, which is 91% higher than the 3,785 KRW per share acquisition price when MS PE acquired the stake in 2013.

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