[Click eStock] "Korea Kolmar, Performance Recovery After Q4... Investment Rating Up"

[Asia Economy Reporter Song Hwajeong] Hana Financial Investment on the 17th upgraded its investment opinion on Kolmar Korea from 'Neutral' to 'Buy,' anticipating a recovery in domestic and international performance from the fourth quarter onward. The target stock price was maintained at 52,000 KRW.

Jongdae Park, a researcher at Hana Financial Investment, stated, "The investment opinion is upgraded due to the widening gap with the current stock price," adding, "The current stock price is undervalued at a 12-month forward price-to-earnings ratio (PER) of 11.4 times. We can expect a recovery in the domestic market next year with the gradual return to normal life (With Corona). The recovery in performance, the high growth potential of 'K-CAB,' the possibility of enhancing HK Innoen's corporate value through vaccine business expansion, and the normalization of the Wuxi corporation in China are all factors for valuation premium."

Kolmar Korea recorded poor performance in the third quarter of this year. On a consolidated basis, third-quarter sales increased by 18% year-on-year to 375.9 billion KRW, while operating profit decreased by 32% to 12.8 billion KRW. The operating profit fell significantly short of the market consensus of 23 billion KRW. The domestic cosmetics business was sluggish due to inventory adjustments by clients, and the Beijing and Wuxi corporations recorded operating losses of 800 million KRW and 4 billion KRW, respectively. Thanks to the strong performance of the new drug for gastroesophageal reflux disease, K-CAB, HK Innoen's operating profit increased by 27% to 17.1 billion KRW, and Canadian CSR sales rose by 38%, showing signs of normalization. Researcher Park analyzed, "The consolidated operating profit was significantly lower than the sum of individual profits because a one-time cost of 7.5 billion KRW related to Innoen's listing was reflected in the consolidated income statement, unlike the separate financials. Excluding this accounting issue, the actual operating profit is expected to be around 20 billion KRW, which is not far below expectations."

Sales and profit recovery are expected from the fourth quarter onward. Researcher Park explained, "In the domestic business, as social distancing regulations have been eased, face-to-face sales by clients have become possible, and we can expect a recovery in beverage sales including Innoen's condition. In North America, the easing of global raw material price increases and logistics burdens is positive." He added, "Consolidated operating profit for the fourth quarter is expected to be 31.8 billion KRW, a 39% decrease year-on-year, but excluding the one-time profit of around 20 billion KRW from Innoen in the fourth quarter of last year, it effectively represents an increase in profit."

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