Cosmetics: Makeup Demand to Recover

The writer is an analyst of NH Investment & Securities. She might be reached at [email protected] — Ed.

 

Cosmetics gamers making efforts to enhance enterprise fashions amid unfavorable exterior environments

We keep a Positive score in direction of the cosmetics sector, noting a rebound in world cosmetics demand and bettering enterprise competitiveness at cosmetics gamers (led by restructuring results). Over the previous 4 years, home cosmetics firms have made important restructuring efforts so as to enhance their company fundamentals amid unfavorable enterprise environments (stemming from the THAAD battle and Covid-19). They have additionally adjusted their enterprise fashions and distribution channel portfolios to higher sustain with modifications in shopper tendencies in Korea and China, a significant abroad market. All in all, in 2021, cosmetics corporations are predicted to see robust earnings progress thanks to y-y low base results and recovering cosmetics demand at dwelling and overseas.

Demand restoration to unfold from China to Korea and from skincare to make-up choices

Global cosmetics demand is beginning to enhance amid rising vaccination numbers and a resumption in out of doors actions. In 2H20, the cosmetics market restoration concentrated upon: 1) China, which overcame the Covid-19 disaster comparatively rapidly; and a pair of) the skincare/luxurious cosmetics classes. But, this 12 months, we count on the restoration pattern to unfold from China to Korea, and from skincare merchandise to make-up choices. We notice that cosmetics demand has been selecting up in earnest in Korea since March. Having been dampened by masks carrying practices final 12 months, Chinese market demand for make-up merchandise has been exhibiting enchancment since end-2020. From 2Q21 onwards, we count on an analogous pattern to be witnessed in Korea.

By channel, an anticipated enhance in offline buying (which had to be bodily restricted in the course of the Covid-19 disaster) is to come into the highlight. On the again of an explosive enhance in consumption demand in China, home DFS channel earnings are located to return to the 2019 degree, and DFS earnings on the prime home model gamers must also rebound quickly. Department retailer gross sales progress is ready to flip favorable from 2Q21 on each y-y low-base results and a normal home consumption restoration.

Offer AmorePacific and Cosmax as sector prime picks

We keep AmorePacific and Cosmax as our sector prime picks. We additionally like Clio as a promising play amongst small/mid-sized cosmetics gamers. In addition to a powerful DFS gross sales rebound, a gradual gross sales restoration for main manufacturers (Sulwhasoo, Hera, Laneige) must also translate into sharp earnings enchancment at AmorePacific. Looking at Cosmax, its shares suffered due to share dilution considerations following a rights providing. However, as associated negatives are to fade, we count on Cosmax’s shares to exhibit a powerful rebound in 2H21. And, working losses at its US subsidiary ought to slender regularly thanks to long-term provide contract with a world consumer. Meanwhile, Clio is ready to profit from full-fledged demand restoration for shade cosmetics merchandise from 2Q21.

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