[Click e Stocks] "Amorepacific, Structural Threat Factors Persist Amid Declining Earnings Visibility"

[Asia Economy Reporter Song Hwajeong] Meritz Securities maintained a 'Hold' investment rating and a target price of 200,000 KRW for Amorepacific on the 1st, citing a decline in short-term earnings visibility and persistent mid- to long-term structural threats.

Amorepacific's third-quarter earnings this year significantly missed market expectations (consensus). Third-quarter sales increased by 1.9% year-on-year to 1.1089 trillion KRW, while operating profit decreased by 10.2% to 50.3 billion KRW. Hanuri, a Meritz Securities analyst, explained, "Price cuts and increased promotions damaged profitability," adding, "Operating profit fell short of consensus by 34.7%."

In the domestic market, the cosmetics segment posted sales of 597.5 billion KRW, up 11.8%, and operating profit of 57.2 billion KRW, up 124.5%. The duty-free sector showed steady growth with a 15.3% increase, and online sales also demonstrated a strong growth rate of 30%. The household goods segment recorded sales and operating profit of 124 billion KRW and 1.4 billion KRW, respectively, down 10.3% and 86.5% year-on-year. Analyst Han noted, "This was due to focusing on reorganizing high-end products amid intensified competition."

In overseas markets, sales in China decreased by 11.0% to 239.3 billion KRW, and operating profit dropped 50.2% to 6.7 billion KRW. Han analyzed, "The strong performance of Sulwhasoo, which grew by 50%, was insufficient to offset the poor results of Innisfree (-53%) and Laneige (-15%). Increased inefficient marketing eroded the effects of store closures, resulting in an operating profit margin of 2.8% (-2.2 percentage points)."

Meritz Securities recommended a cautious approach toward Amorepacific. Analyst Han stated, "Sales growth accompanied by rising costs implies brand power erosion, and weak sales relative to cost increases indicate brand aging. Sales recovery is slow, and profit improvement is limited. Additionally, structural threats such as the burden of China's low base, prolonged COVID-19 effects reducing short-term earnings visibility, contraction of Daigong (peddler) sales activities, and intensified competition in China also persist."

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