[Into the Stocks] Cosmetics Big 2's Fate: 'Bottom' VS 'Basement'... What Made the Difference?

[Asia Economy Reporter Lee Seon-ae] The two leading domestic cosmetics companies, LG Household & Health Care and Amorepacific, both posted sluggish second-quarter results due to the impact of China's lockdown measures. The securities industry's evaluations of these companies, which face the challenge of breaking through profitability, are divided. LG Household & Health Care's current stock price is seen as the 'bottom,' while Amorepacific is viewed as having fallen below the bottom, into the 'basement.' Securities firms have raised their investment opinions and target prices for LG Household & Health Care, while effectively issuing hold-to-sell opinions and lowering target prices for Amorepacific. What determined their fates? It was the resilience of duty-free sales. They advised maintaining a conservative investment strategy for Amorepacific but suggested aiming for a short-term rebound for LG Household & Health Care.

According to the financial investment industry on the 1st, Yuanta Securities, Kiwoom Securities, and DB Financial Investment raised their target prices for LG Household & Health Care along with buy recommendations (Yuanta from 800,000 KRW to 1,000,000 KRW, Kiwoom from 800,000 KRW to 950,000 KRW, DB Financial Investment from 700,000 KRW to 900,000 KRW). KB Securities, Samsung Securities, and Daol Investment & Securities maintained hold ratings but raised their target prices: KB Securities from 750,000 KRW to 850,000 KRW, Samsung Securities from 590,000 KRW to 630,000 KRW, and Daol Investment & Securities from 800,000 KRW to 840,000 KRW.

On the other hand, for Amorepacific, Korea Investment & Securities lowered the target price by 10%, from 200,000 KRW to 180,000 KRW. KB Securities (200,000 KRW → 180,000 KRW), Hyundai Motor Securities (160,000 KRW → 145,000 KRW), Yuanta Securities (190,000 KRW → 160,000 KRW), DB Financial Investment (200,000 KRW → 150,000 KRW), and Daol Investment & Securities (180,000 KRW → 120,000 KRW) also lowered their target prices. Notably, Daol Investment & Securities downgraded its investment opinion from buy to hold, effectively issuing a sell recommendation.

The reason for the starkly different fates of the two companies lies in the differing analyses of duty-free sales. The prevailing view is that LG Household & Health Care's duty-free sales have passed the bottom. KB Securities analyst Park Shin-ae explained, "As lockdown measures ease, Chinese consumption is expected to gradually improve from the second half of the year, and it appears that the worst phase of earnings is over. In particular, the rapid improvement in duty-free sales is offsetting the poor performance of the Chinese subsidiary." LG Household & Health Care's second-quarter duty-free sales reached 330 billion KRW, more than double the previous quarter. Yuanta Securities analyst Park Eun-jung said, "LG Household & Health Care seems to have passed the bottom in the high-margin duty-free channel demand, so profit growth is expected in the second half. The current low valuation is especially attractive."

In contrast, Amorepacific's duty-free sales recovery is slower, leading to speculation that the second quarter may not be the bottom. Daol Investment & Securities analyst Baek Song said, "Duty-free sales fell 21% compared to the previous quarter, and there has been no significant improvement even after the easing of China's lockdown. The third quarter is expected to see continued negative growth in major channels and brands, including Sulwhasoo, making profit decline inevitable and limiting upside potential," cautioning investors. KB Securities analyst Park Shin-ae also noted, "Due to the earnings shock, investment sentiment is expected to deteriorate, and the stock price is likely to remain sideways for the time being." Amorepacific closed at 129,000 KRW on the last trading day of July. The stock price exceeded 165,000 KRW in early June but plunged to the 120,000 KRW range within two weeks. The current price is nearly 57% lower compared to the peak in May last year.

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