[Click eStock] Cosmax, Significantly Undervalued Compared to Fundamental Improvements, 'Increase Weight'

[Asia Economy Reporter Lee Seon-ae] Hana Financial Investment maintained its overweight strategy and a target price of 120,000 KRW for Cosmax on the 22nd, citing the company’s high technological capabilities and infrastructure-based entry barriers, as well as its status as the world’s No. 1 global cosmetics ODM company, which contrasts with its significantly undervalued stock price.

Cosmax’s consolidated Q4 sales and operating profit are estimated to be approximately 392 billion KRW and 18 billion KRW, respectively, representing increases of 11% and 7% compared to the same period last year. Domestic business sales are expected to grow by only 1% year-on-year, and Chinese business sales are projected to decline by 2%. However, the U.S. business sales are anticipated to drive external growth with more than a 70% surge due to facility expansion (NuWorld) and the acquisition and production of hand sanitizer licenses (USA). Although the Shanghai subsidiary’s turnkey operations are reduced and the Guangzhou subsidiary’s low base last year contributes to an expected 47% increase in operating profit for the Chinese business, operating profit margin is forecasted to remain at 4.6% (down 0.2 percentage points year-on-year) due to poor performance in Southeast Asian businesses such as Thailand and Indonesia.

Despite a challenging domestic cosmetics market shrinking by more than 10%, the domestic business maintains sales through aggressive marketing and acquisition of new buyers, indicating an increase in market share. The Chinese business recorded a historic high production volume of over 50 million units per month in Q4, a 15% increase in quantity terms. Considering that the ODM market aligns with the mid-to-low price segment, market share is rising. The U.S. business is also improving growth rates through facility expansion and hand sanitizer license acquisition and production. The weaker-than-expected Q4 performance is attributed to the Southeast Asian business, which was not considered a core growth driver.

Jong-dae Park, a researcher at Hana Financial Investment, stated, “Cosmax is expanding its domestic and international business capabilities, fundamentals, and market share based on overwhelming technological prowess, product categories, and production capacity, making it one of the biggest beneficiaries of the global cosmetics market recovery in 2021, including China. However, the stock price has significantly dropped compared to September, currently trading at a 12-month forward PER of only 13.8 times, making an overweight position valid.”

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