Still Dark Clouds Over 'Hwajangpum', Stock Trend Rebound Limited "Investment Opinion Neutral"

[Asia Economy Reporter Lee Seon-ae] Hyundai Motor Securities announced on the 9th that it maintains a neutral investment opinion on the cosmetics sector.

Although the lifting of China's lockdown and the improvement of key channels for the cosmetics sector, such as duty-free and local markets, have passed their lowest points and are improving, the overall annual recovery is expected to be limited.

Jeong Hye-jin, a researcher at Hyundai Motor Securities, stated, "With the gradual improvement of the market conditions, the downward trend in sector stock prices is expected to stabilize. However, due to the limited recovery of key channels, the earnings momentum for the sector this year is expected to be limited." She added, "For a strategy to increase weighting considering the reduced earnings base in the second quarter to be effective, it is necessary to confirm signals that, despite the contracted market conditions, brand demand itself remains solid."

Currently, the impact of China's lockdown is gradually easing, with April marking the lowest point. The two most important channels for earnings growth in the cosmetics sector, the local and duty-free channels, are also showing gradual improvement. However, there is an increasing burden on local marketing due to the slowdown in consumption of the cosmetics category in China and intensified market competition. Researcher Jeong predicted, "The limited recovery of duty-free channel performance due to delayed recovery of Chinese inbound tourism will result in a slower pace of earnings improvement across the cosmetics sector compared to market expectations."

She continued, "The 618 event, the largest consumption event in the first half of the year, will provide an opportunity to gauge whether the sector's stock prices will experience a trend reversal through solid brand demand and sales performance by brand." She added, "Although initial sales of major domestic brands seem somewhat disappointing, considering the contracted consumer sentiment compared to the previous year, it is still early in the event period, so it is necessary to observe until the end of the consumption event."

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