"Ah, the Good Old Days" Amore & LG Household & Health Care Have No Way to Recover Without China

Plunging Near 52-Week Low
Uncertain Recovery of Investor Sentiment Without Chinese Consumption Stimulus

[Asia Economy Reporter Minji Lee] LG Household & Health Care and Amorepacific both plunged to new 52-week lows, reaffirming negative investor sentiment toward the cosmetics sector. Although expectations had been gradually lowered due to delayed economic recovery in China, the second half earnings are estimated to be worse than anticipated. Market experts advised that despite the significant stock price decline, the only factor that could reverse the situation is China's consumer stimulus measures, so more patience is needed.

According to the Korea Exchange on the 14th, based on the previous day's closing prices, LG Household & Health Care and Amorepacific both set new 52-week lows. LG Household & Health Care's stock price dropped sharply by more than 12.4% from 640,000 KRW to 563,000 KRW over the past week, while Amorepacific fell 8.8% from 104,000 KRW to 94,900 KRW. Due to intensified tightening policies and growing recession concerns, their prices declined by 16.2% and 20.6%, respectively, over the past month.

The main reason for the sharp decline in their stock prices this month is disappointment over third-quarter earnings. Despite continuously lowering earnings expectations since the beginning of the year, they are unlikely to meet market forecasts due to sluggish demand for cosmetics in China. LG Household & Health Care's estimated third-quarter revenue is 1.909 trillion KRW, and operating profit is expected to decrease by 5% and 30%, respectively, compared to the same period last year. This figure is more than 100 billion KRW lower than the April estimate of 352 billion KRW. On an annual basis, operating profit is projected to fall by 34% to 851.6 billion KRW. Amorepacific's third-quarter revenue is forecasted at 974.7 billion KRW, with operating profit at 24.3 billion KRW, representing decreases of 12% and 52%, respectively, year-over-year. Annual operating profit is estimated to decline by 36% to 219.8 billion KRW.

Park Eun-kyung, a researcher at Samsung Securities, said, "The consumption sentiment contraction triggered by the zero-COVID policy is not recovering easily. As popular Chinese influencers (Wanghong), who were responsible for sales and marketing activities, have come under Chinese government surveillance, weak demand from China continues."

The Guanggun Festival (November 11), which has driven stock price rebounds in the second half, is also expected to be absent this year. The Guanggun Festival is the Chinese equivalent of Black Friday and the peak shopping season. It is a major sales opportunity for domestic cosmetics companies, but this year is different. Heo Jena, a researcher at DB Financial Investment, analyzed, "Brands are conservatively forecasting demand, and while there used to be clear stockpiling ahead of the November event, the current situation is quiet."

The only momentum needed for a stock price turnaround for LG Household & Health Care and Amorepacific is currently China. Although there are forecasts that K-beauty will help increase sales in the Japanese market, especially among color cosmetics companies, LG Household & Health Care and Amorepacific are excluded from this trend. In LG Household & Health Care's case, although the distribution network was secured through the acquisition of Ginza Stephanie, it is evaluated that there are no suitable brands to launch. Park Hyun-jin, a researcher at Shinhan Investment Corp., explained, "If consumer stimulus measures are introduced in China around the October Party Congress, cosmetics consumption recovery can be expected regardless of the Chinese economy. Until then, investments in domestic-based color cosmetics companies within the cosmetics sector are likely to be promising."

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