Earnings Surprises Await for Peak Season: A Comprehensive Analysis
1Q25 Review: Korea, China, and US Surprises
In an unexpected turn of events, Kolmar Korea's 1Q25 financial results have surpassed analyst expectations, showcasing a robust business performance across multiple regions, including Korea, China, and the United States. The company reported remarkable growth with revenues reaching KRW 653.1 billion, a 14% increase year-on-year (YoY), and an impressive operating profit of KRW 59.9 billion, marking an 85% surge YoY.
Korea: Dominance in Sun Care and Indie Brands
Kolmar Korea’s domestic sales hit KRW 274.3 billion, an 11% YoY boost, primarily driven by the burgeoning success of sun care indie brands. These boutique brands are outperforming the market, particularly as traditional legacy brands witness a decline (estimated at a current market share of 10% compared to 40% previously). With Q2 historically being the peak season for sun care products, we are observing a surge in orders for these key brands. This shift has substantially improved the company's sun care and Hero SKU mix, elevating the operating margin to a robust 12.4%, the company’s most impressive Q1 margin on record.
China: Rebounding on the Global Stage
China, previously lagging, has made a striking comeback with sales climbing to KRW 41.6 billion, a 20% increase YoY, and an operating profit of KRW 3.1 billion, shooting up by 72% YoY with an operating margin of 7.5%. The past year's slump, due to negotiating unit price disputes, has reversed with sun care orders expected to rise, signaling sustained growth momentum.
United States: Leveraging Market Opportunities
The US sector has continued its high-growth trajectory, with sales skyrocketing by 210% YoY to 21.7 billion won. Operating profits turned positive at 1.5 billion won, reflecting a quarter-on-quarter increase of 300 million won and an operating margin of 6.9%. This success is attributed to the acquisition of new clientele and a flourishing order book, bolstered by the inclusion of new base makeup products.
Earnings and Valuation: Positioned for Growth
Kolmar Korea’s stock benefits from the dual tailwinds of sun care momentum and advantageous US valuations. As suncare orders stack up during peak season, we anticipate domestic margins reaching unprecedented heights in Q2. The planned completion of a second US plant by June, coupled with active negotiations with potential brands keen on onshore production due to new tariff policies, bodes well for future growth. Consequently, we have elevated our 25-year US revenue forecast from KRW 80 billion to KRW 90 billion, underscoring the revenue potential.
Reflecting these upward revisions and heightened valuations, we are raising our price target from KRW 92,000 to KRW 110,000. The stock remains attractively priced at a 14x 12-month forward price-to-earnings ratio, consistent with industry multiples, making the buy recommendation compelling.
Conclusion
Kolmar Korea stands poised at the cusp of significant growth strides, driven by strategic initiatives across key geographical markets. As peak sun care season aligns with their operational strengths, and with the expansion of US production capabilities, Kolmar Korea is well-positioned to capitalize on upcoming opportunities, offering investors a lucrative position in a rapidly evolving global market.
