[Click eStock] "Cosmax, Oversold Zone... Effective for Low-Price Buying"

Hana Financial Investment Report

[Asia Economy Reporter Minji Lee] Hana Financial Investment maintained its buy rating and a target price of 145,000 KRW for Cosmax on the 22nd. Despite the earnings uptrend, the stock price decline due to concerns over the China business is considered excessive.

Cosmax's consolidated Q4 sales and operating profit are expected to reach approximately 410 billion KRW and 25 billion KRW, up 16% and 137% respectively compared to the same period last year. Headquarters sales are projected to grow 17%, and China business sales 18%, driving earnings improvement. Sales from Guangzhou and the U.S. subsidiaries are expected to decrease by 8% and 25% year-on-year due to a high base last year, but this will likely be offset by continuous export volume growth from major domestic clients and a 24% increase in sales from the Shanghai subsidiary. Continuous profitability improvement is expected through inventory and production efficiency, with consolidated operating margin estimated to rise to 6.1%.

Despite the slowdown in the Chinese market consumption, Cosmax's China business and Shanghai subsidiary sales are expected to record over 40% top-line growth this year. Due to insufficient production facilities, an expansion costing around 5 to 10 billion KRW will be necessary as early as next year.

Jongdae Park, a researcher at Hana Financial Investment, explained, "Sales efforts targeting online brand buyers based on high technology and diverse product categories have been effective," adding, "The impact of the revised Chinese Cosmetics Basic Law, changed for the first time in 30 years, is significant, and with new product registration becoming very stringent, dependence on large ODM companies like Cosmax is increasing."

Despite overwhelming earnings momentum, concerns over the U.S. business performance and the domestic listing of Cosmax East are major uncertainties. The U.S. business is analyzed to have passed the worst phase due to economic recovery and stabilization of OEM volumes for major clients. Also, the domestic listing of the core affiliate Cosmax East inevitably damages valuation due to double counting issues.

Researcher Park said, "Even considering these factors, the recent stock price decline is excessive," and added, "Even with a 50% discount on the China business value, the appropriate target price is 140,000 KRW, and the current stock price, based on a 12-month forward price-to-earnings ratio (PER) of 8.4 times, is a valid buying opportunity at the bottom."

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