[Click eStock] "Cosmax, Expecting Corporate Value Recovery with Expanded Earnings Improvement"

[Asia Economy Reporter Song Hwajeong] NH Investment & Securities maintained its 'Buy' rating and target price of 145,000 KRW for Cosmax on the 12th, expecting the company's value to recover as the scope of earnings improvement expands.

Mi-jin Cho, a researcher at NH Investment & Securities, said, "Although investor sentiment worsened recently due to a rights offering, earnings are expected to show a solid upward trend. Consumption in China is increasing significantly beyond initial expectations, and domestic cosmetics demand is rapidly recovering, highlighting the expansion of profit leverage due to industry recovery."

Cosmax posted results exceeding market expectations in the first quarter of this year. On a consolidated basis, first-quarter sales were 345 billion KRW, operating profit was 23.3 billion KRW, and net profit was 9.8 billion KRW. These figures represent increases of 5.0%, 45.2%, and 721.3%, respectively, compared to the same period last year. Sales and operating profit of the Korean subsidiary decreased by 6.7% and 2.9%, respectively. Although sales of the high-margin hand sanitizer sharply declined, operating profit margin improved by 0.3 percentage points due to product mix improvement and reduced inventory write-offs. The Shanghai subsidiary (57%) and Guangzhou subsidiary (35.5%) recorded growth exceeding the overall market. The Ohio (-17.8%) and NuWorld (-11.4%) subsidiaries in the U.S. experienced negative growth due to an overall reduction in internal transactions despite increased sales to major clients. The deficit also widened due to product mix deterioration and increased costs. Researcher Cho said, "In the second half, profitability is expected to improve due to global client order contracts and changes in the Hard Candy contract."

Researcher Cho added, "By revising upward the earnings estimates, the change in the 2021 earnings per share (EPS) estimate, reflecting the increase in shares after the rights offering, is -4.1%, which can largely offset the dilution of equity (13%). Cosmax's core competencies, which have proven outstanding sales capabilities and technological expertise through continuous cooperation with major brands in the domestic and Chinese markets, are rather strengthening, so it is time to focus more on industry recovery and the resulting earnings improvement."

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