Aekyung Group is pushing for the sale of its cosmetics and daily necessities subsidiary, Aekyung Industrial, which is the corporate mother. The group's financial structure has worsened due to the COVID-19 pandemic and has been further affected by the Jeju Air incident at Muan International Airport at the end of last year, indicating an effort to overcome the crisis by selling the cash cow, Aekyung Industrial.
Industry insiders analyze that the sale of Aekyung Industrial could become a symbolic event for the generational shift in K-beauty. Based on sales, Aekyung Industrial fell from its previous third place to fifth place, overtaken by emerging players, Goodai Global and APR, in the beauty industry last year. The market landscape has changed, which used to be dominated by Amorepacific Corporation, LG H&H, and Aekyung Industrial.
According to industry sources on the 3rd, Aekyung Group recently selected Samjeong KPMG as the lead manager and is moving forward with the sale of Aekyung Industrial. The sale target is 63.38% of ownership equity in Aekyung Industrial held by AK Holdings, Aekyung Asset Management, and related parties. Considering that Aekyung Industrial's market capitalization was 382.9 billion won based on the previous day's closing price, its simple equity value is around 242.6 billion won. Investment banks (IBs) expect the sale price to proceed at a higher level of 600 billion won, reflecting the management premium.
Aekyung Group's decision to sell Aekyung Industrial, its corporate mother, is attributed to significant liabilities. Aekyung Group continued to inject funds into Jeju Air during the COVID-19 pandemic, which has weighed on the overall financial soundness of the group. Due to the effects of reduced consumption and skyrocketing raw material prices, other subsidiaries in distribution and chemicals have also experienced poor performance. Consequently, the total liabilities of AK Holdings, the group's holding company, were approximately 4 trillion won as of the end of last year, with the debt ratio soaring from 233.9% in 2020 to 328.7% last year.
Aekyung Group grew from its foundation as 'Aekyung Yuchigongup Co., Ltd.' established in 1954, producing soaps and detergents. Currently, it is engaged in four main businesses: ▲ Jeju Air (aviation) ▲ Aekyung Industrial (daily necessities and cosmetics) ▲ Aekyung Chemical (petrochemicals) ▲ AK Plaza (department stores and distribution), among which AK Plaza is the only unlisted company.
Aekyung Industrial's performance is also poor. The company has relied excessively on the Chinese market and has experienced sluggishness in recent years. The proportion of Aekyung Industrial's sales from China accounts for 70% of total overseas sales. Additionally, the focus on home shopping and middle-aged consumers for core products like Age 20’s has become a limitation. Last year, it lost its long-held third place to Goodai Global and APR. While new indie beauty brands have rapidly grown and succeeded in the North American market, Aekyung Industrial has fallen behind.
Industry insiders analyze that the sale of Aekyung Industrial signifies a generational shift in K-beauty. The existing 'Big 3' cosmetics companies grew through the Chinese market but have faced limitations due to a complex interplay of factors, including China’s economic downturn, the ban on Korean cultural imports, and patriotic consumption. Since last year, the North American market has been leading the K-beauty boom, with emerging players like Goodai Global and APR succeeding on platforms like Amazon. Currently, Korean cosmetics exports rank first in the export value, surpassing France in both the U.S. and Japan.
Korean cosmetics brands successful in North America and Japan are rapidly growing by captivating the local MZ (Millennials and Generation Z, born from the 1980s to 2000s) consumers through short-form marketing on platforms like TikTok. Goodai Global conducted multiple mergers and acquisitions (M&A) regarding Tirtir last year, increasing its revenue to over 1 trillion won. APR also achieved sales of 700 billion won. Other brands like The Founders (Anua), VT, Binau, and Round Lab recorded sales of 300 to 400 billion won last year, closely trailing Aekyung Industrial. Although Aekyung Industrial attempted to enter the U.S. market with Luna, it has not achieved significant success and has fallen behind.
From Aekyung Group's perspective, there are analyses suggesting that selling Aekyung Industrial while it can still fetch a good price is the best way to prevent a crisis. Aekyung Industrial, whose core businesses are daily necessities and cosmetics, continually generates cash flow as a cash cow. Last year, it recorded sales of 679.1 billion won and an operating profit of 46.8 billion won. Conversely, there are negative opinions regarding the sale of Aekyung Industrial, which carries tradition and established brands like Luna.
An industry insider remarked, "From Aekyung Group's point of view, selling Aekyung Industrial, which is losing competitiveness, before its value diminishes could be the best option. However, if Aekyung Industrial, with its long history and core brands like Luna, passes to private equity or foreign capital, it may lose even the opportunity to regain its competitiveness due to being dismantled."
Aekyung Group stated that nothing has been decided regarding the sale of Aekyung Industrial. Aekyung Group representatives noted, "The sale of Aekyung Industrial has not yet been concretely confirmed," adding, "However, it is true that we are reviewing various options to improve the group's financial structure and reorganize the business portfolio."