Clio Cosmetics: Domestic Profitability Improving, Overseas Growth Expected...Target Price Raised 21%

[Financial News] Hyundai Motor Securities raised its target price for Clio Cosmetics by 21.4%, from 14,000 won to 17,000 won, saying the company is improving profitability by restructuring low-profitability channels in South Korea while expanding the contribution of sales from the United States and Greater China. The brokerage maintained its Buy rating.
In a report on the 9th, Hyundai Motor Securities researcher Ha Hee-ji said, "Clio Cosmetics is expected to maintain solid profitability as it restructures low-profitability channels in South Korea and improves profitability in the health and beauty (H&B) channel." She added, "It is also positive that the contribution of sales is expanding, particularly in the United States and Greater China."
Clio Cosmetics posted second-quarter sales of 86.8 billion won, up 5.7% from a year earlier, while operating profit rose 230.1% to 11.6 billion won. Its operating margin stood at 13.4%.
Ha analyzed, "In South Korea, growth continued mainly through online vertical channels, while the health and beauty (H&B) channel also drove second-quarter growth, supported by strong sales of new color cosmetics products and goodal sun-care products." She explained, "Improved costs resulting from a lower proportion of large-scale collaboration promotions in the H&B channel, along with improved commission rates following the reduction of low-profitability channels such as home shopping and Daiso, contributed significantly to the increase in profit."
Overseas, growth in North America stood out. While overseas sales increased 1.2%, sales in North America rose 57%. Second-quarter sales through Amazon.com in the United States amounted to approximately 5 billion won, and the company is scheduled to enter local offline distribution networks including Costco Wholesale, Nordstrom and OLIVE YOUNG in the second half of the year.
Ha said, "North America is showing the most solid growth among overseas regions, and Clio Cosmetics’ contribution from its eye category is also expanding." Regarding Japan, however, she forecast, "The effects of reducing the low-profitability online Rakuten channel and reorganizing the business structure will continue for the time being."
Hyundai Motor Securities forecast Clio Cosmetics’ third-quarter sales at 87.7 billion won, up 4.7% from a year earlier, and operating profit at 7.3 billion won, up 54.3%.
Ha forecast, "Domestic online sales will continue to grow, led by vertical platforms, while the H&B channel will also expand, supported by the peak-season effect and the launch of new fall and winter products." She added, "Solid profitability is expected to continue in the third quarter as the effects of reducing large-scale promotions and streamlining inefficient channels become visible."
She added, "In North America, there will be no Amazon.com promotional event, and entry into major offline channels is concentrated in the fourth quarter, so expectations should be lowered somewhat for the third quarter."
[email protected] Lee Jeong-hwa Reporter