Domestic major asset management companies are reducing their holdings in cosmetics corporations that had seen rising stock prices and are moving to lock in profits. In particular, there is a tendency to offload shares of companies expected to see a slowdown in future performance. Analysts are noting that it is necessary to discern between companies benefiting from U.S. tariffs and those with steady growth in domestic sales.
◇ Asset management companies reduce stakes in CLIO Cosmetics and Cosmecca Korea... Increased performance burden↑
On the 10th of this month, VIP Asset Management announced that it reduced its stake in the cosmetics brand CLIO from 7.16% to 6.71%. VIP Asset Management had acquired a new stake of 5.77% in CLIO in October of last year and had increased its holdings to over 7% by December of the same year.
KB Asset Management also announced on the 1st that it reduced its stake in the cosmetics manufacturer Cosmecca Korea from 7.59% to 6.79%. In November of last year, KB Asset Management had purchased more than 5% of Cosmecca Korea's stake and increased it to around 7% by February of this year, but recently sold about 80,000 shares (approximately 3.8 billion won).
CLIO is a cosmetics brand, while Cosmecca Korea is an Original Design Manufacturer (ODM) producing cosmetics based on orders. Although their business natures are somewhat different, both companies share the commonality of being evaluated for a slowdown in performance growth.
According to the consensus in the securities industry, CLIO's sales and operating profit are expected to decrease by 1.4% and 16.5% year-on-year, respectively, to 91.7 billion won and 7.1 billion won in the first quarter of this year. While the company has expanded its sales territories to North America, Thailand, Indonesia, and Italy, it has not yet been able to achieve significant results.
MERITZ Securities forecasted that CLIO's sales in the U.S. and China for the first quarter of this year would decrease by 30% and 20% respectively compared to the previous year, which saw a significant effect from the launch of new PERIPERA products.
In the case of Cosmecca Korea, there are forecasts that it will be difficult to increase performance to the level seen last year. Cosmecca Korea's domestic sales reached 95 billion won in the second quarter of last year, and even if new transactions and products are contracted this year, it is said to be hard to exceed this amount. Cosmecca Korea is also targeting a break-even point (BEP) of 50 billion won for its Chinese subsidiary this year.
◇ Must watch companies benefiting from EPS rise and U.S. tariffs this year
Experts noted that in selecting promising cosmetics corporations for investment this year, it is vital to consider the earnings per share (EPS) rise and whether they benefit from the implementation of tariffs in the U.S.
Historically, cosmetics stocks have often risen when corporations increasing their exports see gains in stock prices. However, the issue lies domestically. Due to poor domestic demand last year, cosmetics corporations' EPS fell, increasing valuation burdens. Ultimately, a noticeable overall improvement in performance must occur for EPS to rise, enhancing the likelihood of stock price increases.
MERITZ Securities identified COSMAX, Kolmar Korea, APR, and Pumtech Korea as companies with performance momentum. It selected Amorepacific Corporation and SILICON2 as companies likely to see increased stock price volatility following their earnings announcements for the first quarter.
Park Jong-dae, a researcher at MERITZ Securities, stated, “Amorepacific Corporation has transformed into a business structure where mid-sized brands such as Laneige drive the company’s performance, and SILICON2 is rapidly absorbing demand in Europe and the Middle East following its success in the U.S., suggesting that investor directions may change depending on their performance.”
Some corporations can benefit from the 25% tariff implementation policy in the U.S. This includes companies that directly distribute and produce in the U.S. using local subsidiaries and factories. By distributing directly without involving vendors, the export unit price is set at the purchase cost rather than the supply price with vendor margins, reducing tax burdens.
Currently, major corporations and mid-sized companies directly distributing cosmetics brands include Amorepacific Corporation, LG H&H, APR, CLIO Cosmetics, and iFamilySC.
Mirae Asset Securities recommended APR and Kolmar Korea, which is expected to start operations at its new plant in the U.S. during the second quarter of this year, among cosmetics corporations directly distributing and producing in the U.S. APR has seen performance growth along with expectations of tariff benefits, with its stock price soaring 44% from 50,000 won to 72,000 won from January 1 to April 18 this year.
Baek Se-won of Mirae Asset Securities said, “Kolmar Korea has secured large-scale production facilities with cost competitiveness in the U.S., and is expected to benefit from tariff uncertainties, while APR is also expanding its business directly in the U.S., showing significant overseas growth potential.”