[Click eStock] "Cosmax, 2Q Recovery Strengthens with China's Demand Rebound... Target Price Up"

Shinhan Investment Corp. maintained its investment opinion of 'Buy' on Cosmax on the 15th and raised the target price from the previous 100,000 KRW to 110,000 KRW.

Cosmax's consolidated sales for the first quarter were 403.3 billion KRW, and operating profit was 13.8 billion KRW, with sales meeting expectations and operating profit exceeding market expectations.

Domestic sales increased by 19% year-on-year, driving external growth, while sales in China decreased by 18% during the same period but have shown a strong recovery trend since March. Although a decline in operating profit was expected due to an increase in cost ratio caused by the timing difference in domestic color cosmetics orders and raw material purchases, as well as conservative evaluations of some accounts receivable, the results were better than expected. One-time costs related to the closure of the Ohio subsidiary in the U.S. significantly decreased compared to the fourth quarter of last year, with about 1 billion KRW in costs reflected, while the cost burden in New Jersey, which is being integrated, increased, resulting in a net loss of 13.2 billion KRW in New Jersey, similar to the U.S. consolidated loss in the same period last year.

The Korean subsidiary is experiencing high growth within the H&B channel and small to medium online brands due to the endemic effect, and exports to Japan and China are steadily increasing.

Despite pressure on margins due to an increased proportion of color cosmetics production, price increases implemented since the second half of last year appear to be gradually contributing to cost improvements since the first quarter of this year. Additionally, the Shanghai subsidiary in China normalized from early to mid-March, with operating rates recovering from the 40% range in January. Buyer demand is increasing to respond to local consumer demand for the 6.18 JD.com Day in China. In particular, Guangzhou showed relatively high sales growth due to new orders and base effects. The JV factory between Guangzhou and the Eissen Group is scheduled for June, and it will need to be confirmed after the end of May whether the sales of this subsidiary can be consolidated. Of the 70 to 80 billion KRW capital expenditure (CAPEX) planned for this year, half will be used for the expansion of the second Pyeongtaek plant in Korea, and external growth centered on domestic and Chinese markets is expected for the time being.

Hyunjin Park, a researcher at Shinhan Investment Corp., analyzed, "As the stock most closely benefiting from the recovery of local demand in China, the actual recovery strength is expected to strengthen from the second quarter of this year," adding, "With upward revisions to profit estimates, we present a target price of 110,000 KRW, a 10% increase from the previous target, and consider it the top pick within the sector."

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