Korean makeup OEMs, ODMs ride high on stock market as global demand surges

2023.08.10 13:44:02 | 2023.08.10 13:44:36

[Courtesy of Cosmax]이미지 확대

[Courtesy of Cosmax]

As the global demand for affordable indie cosmetics brands continues to surge, South Korean small and medium-sized cosmetics companies, mostly OEMs and ODMs, serving these brands as their primary clients have witnessed a remarkable upswing in their stock prices this year. However, cosmetics conglomerates like Amorepacific and LG Household & Healthcare, heavily reliant on the Chinese market, have faced challenges.

According to securities industry sources on Wednesday, shares of Cosmax Inc. jumped by 40.35 percent, reaching 104,000 won ($79.1) from the starting value of 73,000 won at the beginning of this year. Similarly, Colmar Korea Co. experienced a 20.19 percent increase, C&C International Co. saw a rise of 79.93 percent, CLIO Cosmetics Co. gained 17.53 percent, and Cosmecca Korea Co. an impressive 179.02 percent.

In contrast, shares of Amorepacific and LG Household & Health Care declined by 11.93 percent and 39.13 percent respectively during the same period.

Four out of the listed companies with rising stock prices, except for CLIO Cosmetics, are ODMs and OEMs that manufacture cosmetics for small and mid-sized brands. The surge in their stock values is attributed to the increasing demand for affordable indie brands. Despite the global economic downturn, indie brand products known for their cost-effectiveness have gained immense popularity both at home and abroad.

The companies have continued to post good earnings in the second quarter as well, exceeding market expectations. Cosmecca Korea announced Wednesday that its operating profit for the second quarter this year was 11.2 billion won ($8.52 million), up 264.7 percent from a year ago. C&C International’s operating profit for the second quarter was 10.3 billion won, up 207 percent from the same period last year.

Cosmax and Kolmar Korea are scheduled to report their second-quarter results on Friday. Cosmax’s second-quarter operating profit is estimated at 31.7 billion won, up 84.3 percent from a year earlier, according to financial data tracker FnGuide Inc. The second-quarter operating profit of Colmar Korea is estimated at 40.3 billion won, up 19.94 percent.

Cosmetics giants, on the other hand, delivered earnings shock in the second quarter, falling short of market expectations. While Amorepacific managed to turn its operating profit into the black on the back of growing overseas sales, LG Household & Health Care saw a drop in both sales and operating profit on delayed recovery of Chinese consumption.

Brokerage analysts, in the meantime, are raising their expectations for the ODMs and OEMs.

Samsung Securities Co. upgraded price targets for Cosmax to 130,000 won from 113,000 won and NH Investment & Securities Co. to 125,000 won from 115,000 won. For Kolmar Korea, Samsung Securities raised price targets to 55,000 won from 48,000 won and DB Financial Investment Co. to 60,000 won from 52,000 won. As for C&C International, Hana Securities Co. and Meritz Securities Co. raised their price targets to 70,000 won from 65,000 won.

“More than one-third of C&C International’s 60 million orders in the first half of the year were from U.S. indie brand clients,” said Chung Ji-yoon, an analyst at NH Investment & Securities. “Sales from two major U.S. client brands accounts for about 30 percent of total sales, and the current trend is expected to continue into the second half of the year.”

“A common factor behind the rapid sales growth of many Korean ODMs this year is the increasing global demand for small, mid-sized and indie brands,” said Park Eun-kyung, an analyst at Samsung Securities. “The rise of e-commerce and multi-brand shop channels has lowered the entry barriers for new brands, and consumers are leaning toward reasonable consumption as their purchasing power shrinks.”

By Choi Ah-young and Choi Jieun

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