Korea Investment & Securities maintained an overweight stance on the cosmetics sector on the 13th, citing strong export performance.
Cosmetics exports totaled $294.15 million during the first 10 days of October, down 26.6% from the previous month but up 122.6% from a year earlier. On a working-day basis, exports rose 13.5% from the previous month and 41.7% year-on-year.
"On a working-day basis, exports to the U.S. were the second-highest on record, while total exports were the third-highest," said Kim Myoung-joo, an analyst at Korea Investment & Securities. "Korean cosmetics brands are winning strong popularity in the U.S. domestic market, whose retail market is more than 10 times the size of Korea's, and in the even larger European market, so 20% to 30% export growth is achievable."
Kim noted that the won-dollar exchange rate fell 5.5% in the third quarter from the second quarter, and that the rate at the end of the third quarter was 12.4% lower than at the end of the second quarter. "The impact of the exchange rate differs by company, but it could cut the operating profit margin of brands and distributors directly exposed to currency moves by 0.4 to 1.2 percentage points," he said.
Still, he judged that currency uncertainty has been resolved as market expectations for earnings have come down along with the exchange rate. For APR (278470), which has the highest share of overseas sales among brand companies, he said: "As expectations for the company's third-quarter results have been lowered, uncertainty over the currency impact has been resolved. On the other hand, cosmetics export performance that exceeds market expectations will come in the fourth quarter rather than the third, and that is not reflected in the share price at all."
"We recommend using the recent share price correction as a buying opportunity," Kim said, maintaining a buy rating on APR with a target price of 520,000 won.
K-beauty's growth has been formidable. According to the Ministry of Food and Drug Safety, domestic cosmetics exports reached $7 billion in the first half of this year, up 27.3% from a year earlier and a record for any half-year period. U.S. market research firm Inkwood Research projects the global K-beauty market will grow from about $5 billion in 2022 to about $12.6 billion by 2032.
Meanwhile, Daol Investment & Securities (030210) lowered its target price for APR to 500,000 won from 560,000 won on the same day. "APR's third-quarter operating profit is expected to rise 95.3% from a year earlier to 187.7 billion won, but that would fall about 5% short of the market consensus of 197.5 billion won," said Park Jong-hyun, an analyst at Daol Investment & Securities. "A higher cost ratio stemming from the stronger won and rising air and inland transportation costs in Europe will weigh on profitability."