[Click eStock] Cosmetics Stocks Surge on China Reopening Hopes... "Earnings to Improve in Q2 Next Year"

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[Asia Economy Reporter Myunghwan Lee] While major domestic cosmetics companies have seen their stock prices rise amid expectations of China's reopening (resumption of economic activities), securities firms predict that a full-fledged recovery in earnings will appear from the second quarter of next year.

Hana Securities analyzed on the 7th, "With the normalization of the Chinese market, ODM (Original Design Manufacturing) sales will visibly increase due to the rise in order volumes from Chinese clients."

According to Hana Securities, the stock prices of cosmetics companies listed on the domestic stock market have maintained a strong upward trend since last month. Reports related to China's reopening have concentrated, positively impacting the sector. Since November, LG Household & Health Care rose 35%, Amorepacific 46%, and the cosmetics sector overall showed a 39% increase. Considering that the KOSPI rose by only about 5% during this period, this is a remarkable rise.

To assess whether this upward trend will continue, Hana Securities suggests referring to the status of the reopening of the domestic cosmetics market. Korea began reopening in stages starting with Pfizer vaccine administration to the elderly in April last year. The cosmetics sector's business conditions depend significantly on the normalization of outdoor activities and the reduction of mask-wearing. Domestic cosmetics retail sales have recovered to about 90% of pre-COVID-19 levels, indicating ongoing normalization. The stock prices of cosmetics stocks were influenced by reopening-related positive factors one month before and three months after vaccination, but thereafter, the stock price trends aligned with earnings performance.

They also analyzed that the benefits of China's reopening will vary by stock. Hana Securities advised that until the first half of next year, the focus should be limited to "reopening within China." Only after the number of confirmed cases stabilizes can it expand to "reopening between countries." Accordingly, they recommended concentrating investments on large-cap value chains with sales in China and ODMs receiving orders from Chinese brands. Researcher Eunjeong Park of Hana Securities stated, "The number of COVID-19 cases is still increasing," adding, "Since there is a possibility of additional increases in confirmed cases when quarantine measures are eased, it is advisable to approach with a gradual easing flow."

Hana Securities forecasts that from the second quarter of next year, major industry indicators related to cosmetics and corporate earnings improvements will be concentrated. Along with this, they expect ODM sales to increase significantly due to increased order volumes from Chinese clients as the Chinese market normalizes.

Hana Securities presented LG Household & Health Care as a preferred stock. They expect Cosmax to show a strong improvement in earnings due to the recovery of Chinese demand.

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