Cosmetics Stocks Preparing to Rebound... High Expectations but Concerns Remain

Rising Trend This Month... Sharp Surge Last Week
Low-Price Buying Rush Amid Expectations for China's Consumption Recovery... Foreign Capital Also Inflowing
Mask Era Continues... Urgent Need for Duty-Free Shop Sales Recovery

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[Asia Economy Reporter Minwoo Lee] The stock prices of cosmetics companies are showing signs of rising. This is interpreted as investment sentiment concentrating due to the judgment that the bottom has been passed and growing expectations for the recovery of consumption in China.

As of 9:58 a.m. on the 23rd, Amorepacific's stock price recorded 197,000 KRW. It rose about 12.6% just last week (16th?20th). Compared to the closing price of 158,500 KRW on the 2nd, it increased by 24.3%. Foreign investors are also showing buying momentum. As of the 20th, foreign net purchases amounted to 78 billion KRW, ranking first among all stocks. This is the highest daily net purchase record this year. The net buying streak has continued for five consecutive trading days.

LG Household & Health Care also recorded 1,573,000 KRW, up 0.58% from the previous trading day at the same time. After hitting a record high of 1,648,000 KRW on the 12th, it dropped to 1,532,000 KRW (on the 19th) last week but is showing signs of rebounding. On the 20th, foreign net purchases of 12.9 billion KRW placed it fourth in the rankings. The net selling streak that lasted for four consecutive trading days reversed starting from the 19th. Companies like Kolmar Korea also showed an upward trend from the latter part of last week.

The market seems to have risen because the cosmetics industry is judged to have passed the bottom. It is analyzed that this is the result of a combination of factors including the recovery of consumption in China, the visit of Wang Yi, China's State Councilor and Foreign Minister, to Korea, and cyclical low-price buying supply and demand factors.

As overall cosmetics demand begins to rebound, growth rate expansion of domestic brands in China and collaborations with recently growing brands are expected to sustain the growth of Original Design Manufacturing (ODM) companies. Expectations for improved relations between Korea and China are also valid. It is analyzed that after enduring the worst period due to the novel coronavirus infection (COVID-19), the industry may enter a phase of sales growth and profitability stabilization in 2021.

The main companies’ strategies to respond to and overcome COVID-19 center on 'digital transformation.' Amorepacific has implemented intensive restructuring from offline to online. As a result, a reduction in fixed cost burdens and profitability improvement due to high-margin e-commerce are expected to begin appearing in domestic and overseas markets. LG Household & Health Care is diversifying its portfolio from the 'Whoo' brand to derma brands. From 2021, the effects of acquiring New Avon and Physiogel are also expected to be highlighted.

Researcher Mijin Cho of NH Investment & Securities explained, "Performance and industry conditions have passed the bottom, and it is judged that structural improvements during the COVID-19 period have also progressed rapidly. Efforts to change sales channels and diversify products have been rapidly advancing centered on major brand companies, and ODM companies such as Kolmar Korea and Cosmax are also striving to sustain growth by diversifying their clients in response to changes in the upstream industry."

However, there is also analysis cautioning against expecting a full recovery yet. It is pointed out that the rise may be due to a cyclical trading market rather than fundamental improvement. Researcher Jongdae Park of Hana Financial Investment said, "Unlike LG Household & Health Care, whose stock price rose due to fundamental improvements, Amorepacific, Aekyung Industrial, and Kolmar Korea have certainly passed the bottom, but uncertainty about the level of future performance improvement remains high. Masks will still need to be worn in 2021, so the recovery in demand for color cosmetics may not exceed a slight base effect, and competition in the Chinese luxury cosmetics market is fiercer than ever. If Amorepacific’s duty-free store performance growth rate does not improve in the fourth quarter, disappointment could be significant," he expressed concern.

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