BULLINK Portfolio Insight: Kolmar Korea's 1Q25 Earnings Surprise
Overview: Anticipation of Earnings Surprises for the Peak Season
The first quarter of 2025 has set a promising tone with notable earnings surprises in key markets, specifically Korea, China, and the US. Kolmar Korea, in particular, has exceeded market expectations, showcasing significant year-on-year growth in both revenue and operating profit. This analysis delves into the core factors driving these results and provides a forward-looking perspective on potential investment opportunities.
Korea's Performance and Market Dynamics
Kolmar Korea reported an impressive KRW 653.1 billion in revenue, representing a 14% YoY increase. Operating profit surged by 85% YoY to KRW 59.9 billion, demonstrating robust growth and operational efficiency. The domestic market contributed KRW 274.3 billion (+11% YoY) to these figures, largely fueled by the booming demand for sun care indie brands. These emerging brands are capturing market share from traditional top-sellers, which are seeing a decline. As we move into Q2, typically the sun care peak season, we anticipate an even stronger top-line growth as legacy brands contract, from an estimated 40% to 10% of market share. This shift in brand dynamics, coupled with an optimized Sun Care and Hero SKU mix, has propelled operating margins to an unprecedented 12.4% for Q1.
China's Surprising Recovery
Despite recent underperformance, Kolmar Korea's operations in China have rebounded with unexpected vigor. Sales rose to KRW 41.6 billion, marking a 20% YoY increase, with operating profit reaching KRW 3.1 billion (+72% YoY), and an operating profit margin of 7.5%. Renewed interest in sun care products from major customers, following the resolution of previous pricing disputes, is expected to sustain this growth trajectory.
US Market Expansion and Profitability
In the US, Kolmar Korea continues to post remarkable growth, with sales soaring by 210% YoY to KRW 21.7 billion. Operating profit also turned positive, increasing by KRW 300 million QoQ to reach KRW 1.5 billion, with an operating profit margin of 6.9%. This uptrend is supported by robust orders from key customers and the acquisition of new base makeup clients. The company is on a path to sustained profitability, with meaningful margins for the second consecutive quarter.
Earnings and Market Valuation Prospects
The momentum in the sun care segment and favorable US valuation metrics underpin Kolmar Korea’s stock performance. With the sun care order backlog reaching new heights during peak season, domestic margins are projected to reach record levels in Q2. The strategic completion of the second US plant in June, alongside potential onshore production shifts due to tariff changes, supports a revised revenue forecast—from KRW 80 billion to KRW 90 billion for 2025.
Consequently, we have increased the price target to KRW 110,000, up from KRW 92,000, reflecting improved financial forecasts (25F domestic OPM at 12.5%) and elevated industry multiples. Currently trading at 14x 12FM PER, Kolmar Korea’s stock remains an attractive buy.
Investment Strategy
Investors are advised to capitalize on Kolmar Korea's robust growth and operational acumen by leveraging the appealing valuation and growth prospects in the sun care and US market sectors. With strategic developments and market expansions, Kolmar Korea stands as a formidable player poised for continued advancement.
Conclusion
Kolmar Korea’s outstanding 1Q25 performance highlights the strategic potential of capturing emerging market segments and optimizing operational efficiencies. As we move further into the year, with anticipated broader market recoveries and strategic expansions, investors can anticipate robust returns on investments aligned with Kolmar Korea's growth trajectory.
