[Click eStock] "Cosmax, Profit Strength to Improve with China's Favorable Wind... Target Price Maintained"

Korea Investment & Securities forecasted on the 2nd that Cosmax's profit resilience will improve due to favorable winds from China. They maintained a 'Buy' investment rating and a target price of 200,000 KRW.

Korea Investment & Securities projected that Cosmax's consolidated sales for the third quarter will increase by 13.4% year-on-year to 519.5 billion KRW, and operating profit for the same period will rise by 26.7% to 42.2 billion KRW. Both sales and operating profit are in line with market expectations. Myungjoo Kim, a researcher at Korea Investment & Securities, explained, "The popularity of Korean cosmetics is steadily increasing beyond the US to Southeast Asia and Europe, so similar to the second quarter, the sluggishness in China will be offset by Korea and other subsidiaries."

Over the past two years, Cosmax's stock price has shown the largest fluctuations among cosmetics stocks. Researcher Kim said, "Due to the large number of overseas subsidiaries, visibility of earnings estimates was low because of loan write-offs and bad debt expenses on accounts receivable. Especially, the issue of bad debt write-offs related to accounts receivable from related parties in the domestic subsidiary, which began to surface after the second quarter earnings, is regrettable." However, he pointed out, "Considering that more than 50% of the total bad debt expenses were contributed by the Chinese subsidiary, it is clear that if the real economy in China recovers, Cosmax's profit resilience will improve."

Researcher Kim added, "It is necessary to observe whether the Chinese government's economic stimulus efforts will actually lead to a recovery in the Chinese cosmetics industry. Given the strong determination of the Chinese government, the possibility of the cosmetics industry worsening further is limited." He continued, "Although there is a possibility of a correction due to the recent rapid rise in stock price, valuation attractiveness and solid domestic business will support the downside of the stock price," and evaluated, "Currently, it is the stock that can most safely enjoy the favorable winds from China among consumer goods."

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