[Click eStock] "AmorePacific, Slow but Recovering... Current Stock Price is the Bottom"

[Asia Economy Reporter Kwon Jae-hee] Shinhan Investment Corp. maintained its 'Buy' rating and target price of 150,000 KRW for Amorepacific on the 1st.

Amorepacific's consolidated sales for the third quarter were 936.4 billion KRW, and operating profit was 18.8 billion KRW, down 15.6% and 62.6% respectively compared to the previous year. Sales met market expectations, but operating profit fell short of consensus by 23%.

Domestic sales decreased by 19% year-on-year, while overseas sales declined by 13%, with overseas performance being relatively better than domestic. Although sales in China dropped 40% compared to the same period last year, sales recovered by 18% compared to the second quarter. Due to the recovery in Chinese sales, the operating loss in China is estimated to have decreased to between 20 billion and 30 billion KRW. However, profits in ASEAN regions outside China improved significantly, resulting in a high single-digit profit for the entire Asia region. Most notably, sales in the US and Europe increased by 97% and 60% year-on-year, respectively. This was driven by expanded Amazon channel sales of Laneige and growth of Innisfree centered on multi-brand shops. Additionally, non-operating foreign exchange gains exceeding 30 billion KRW are expected to lead to an upward revision of the annual net profit consensus.

In the fourth quarter, a turnaround to operating profit is expected due to efforts to improve cost efficiency. Improvements in selling and administrative expenses, including company-wide labor costs, commission fees, and marketing expenses, especially in China, are key factors for profit recovery. Last year's fourth quarter included one-time expenses such as incentive provisions and some organizational restructuring costs amounting to about 40 billion KRW; accordingly, a base effect of at least 20 billion KRW in costs is expected in the fourth quarter of this year.

However, Chinese sales are expected to decline by 17% year-on-year in the fourth quarter due to weak demand during the Singles' Day shopping festival and sporadic lockdowns. In the fourth quarter, reopening effects are anticipated in ASEAN regions excluding China, and North America and Europe are expected to actively leverage the year-end shopping season and seasonal peak to maintain third-quarter level sales growth. The stronger-than-expected profits in ASEAN and significant sales increases in North America and Europe indicate an improving business structure, which is positive.

Hyunjin Park, a researcher at Shinhan Investment Corp., said, "Although sales recovery is slow, profit levels are improving due to cost efficiency. Sales growth outside China is stronger than expected, showing a gradual turnaround trend. Considering this slow but expected recovery trend, we view the current stock price as a bottom and prefer a buying strategy."

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