[Click eStock] "AmorePacific, Need to Adjust Pace in Second Half... Target Price Down"

[Asia Economy Reporter Song Hwajeong] Yuanta Securities on the 29th lowered the target price for Amorepacific from 300,000 KRW to 273,000 KRW, stating that speed adjustment is necessary in the second half of the year. The investment opinion was maintained as 'Buy.'

Amorepacific's second-quarter performance this year fell short of expectations. On a consolidated basis, Amorepacific recorded sales of 1.2 trillion KRW and operating profit of 91.2 billion KRW in the second quarter. These figures represent increases of 12% and 159%, respectively, compared to the same period last year. Eunjeong Park, a researcher at Yuanta Securities, explained, "The market consensus was missed by 19% due to declining profitability in China."

Domestic cosmetics sales increased by 18% to 630 billion KRW, and operating profit rose by 87% to 84.4 billion KRW. With an operating profit margin of 13.5%, domestic profitability settled into double digits. Sulwhasoo and Laneige sales showed strong growth of 24% and 60%, respectively, while digital and duty-free sales grew by 40% and 27%, respectively. Traditional channel sales decreased by 7%. Researcher Park analyzed, "The rise in digital contribution and stabilization of sales decline in traditional channels are positive, but the decline in market share in the domestic duty-free market is regrettable." Overseas sales increased by 10% to 440 billion KRW, and operating profit turned positive at 9.4 billion KRW. Park said, "Sales were as expected, but profitability fell short of expectations. Due to weak profitability of the Chinese subsidiary, the contribution of high-end brands such as Sulwhasoo (60%) and Laneige (20%) expanded, but Innisfree sales decreased (-20%), and increased e-commerce marketing costs resulted in a profit margin of only 2%."

There is an opinion that speed adjustment is necessary in the second half. This is because cosmetics demand may weaken due to the resurgence of COVID-19, and competition may intensify as the base effect in the Chinese industry increases toward the second half. Researcher Park explained, "Currently, the majority of global companies have e-commerce accounting for more than 50% of their sales in China, but as e-commerce marketing methods focus on traffic attraction and expand competitively, the potential profitability of e-commerce is expected to decline," adding, "We lowered the profitability forecast for China in the second half from 11% to 8%."

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