Dongkook Pharmaceutical Co. (086450.KS) is expected to keep expanding revenue and improving profitability on the back of rapid growth in its cosmetics business, according to a new analyst report. The brokerage said an expanding product lineup and overseas sales network for the cosmetics brand Centellian24, combined with better margins in the pharmaceutical business, will underpin earnings growth.
Korea Investment & Securities said in a report on the 23rd that Dongkook Pharmaceutical's consolidated revenue this year will reach 1.049 trillion won ($729 million), up 13.2% from a year earlier, with operating profit rising 13.7% to 110 billion won. "Led by the cosmetics business, the company can improve profitability along with top-line growth," analyst Kang Eun-ji said. "Export momentum in the cosmetics business will also continue in the fourth quarter, with Amazon's Black Friday in the U.S. and Mega Wari in Japan."
Dongkook Pharmaceutical has been broadening its business from a traditional drugmaker into a comprehensive healthcare company spanning cosmetics and health functional foods. Revenue in the first half came to 509.9 billion won, up 11.5% from a year earlier, while operating profit rose 12.6% to 53.4 billion won. The operating margin stood at 10.5%.
Growth was driven by the healthcare division, which includes the cosmetics business. First-half revenue in the division rose 39.8% from a year earlier to 202.9 billion won. Its share of total revenue climbed 5.7 percentage points to 39.8% in the first half of this year from 34.1% last year. Over the same period, revenue from over-the-counter drugs rose 4.6% to 90.8 billion won and prescription drug revenue rose 9.3% to 115.2 billion won. "Profitability improved thanks to the rapid revenue growth at the healthcare division, which includes the cosmetics business," Kang said.
The cosmetics brand Centellian24 has grown using titrated extract of Centella asiatica (TECA) technology, the same ingredient used in the company's Madecassol wound treatment. Beyond its flagship Madeca Cream, the company is widening the lineup to include the Madeca Prime beauty device and mask packs. Bundled sales with existing cosmetics products are also seen amplifying the expansion.
Overseas sales growth is another factor to watch. Dongkook Pharmaceutical is expanding cosmetics distribution through overseas retail channels including Costco and Ulta Beauty, in markets such as the U.S. and Japan. Black Friday in the U.S. and Mega Wari, an online discount event in Japan, at the end of the year are cited as additional export opportunities. If exports lift revenue, the relative burden of fixed costs falls, which could magnify the improvement in profit.
"Along with cosmetics growth, overseas sales of the benign prostatic hyperplasia treatment Uresco and a revamp of the over-the-counter drug portfolio toward higher-margin products will support earnings," Kang said.
