BULLINK Portfolio Report: Earnings Surprises Await for Peak Season
1Q25 Review: Korea, China, and US Surprises
Kolmar Korea: Overwhelming Market Expectations
Kolmar Korea dazzled the market with its 1Q25 financial report, far exceeding expectations. The company reported revenue of KRW 653.1 billion, marking a 14% year-on-year growth. This was coupled with an impressive operating profit of KRW 59.9 billion, an 85% YoY surge. The formidable performance stemmed from robust growth and operating leverage in key markets – Korea, China, and the US.
Domestic Triumph: Embracing Indie Brands
In Korea, domestic sales soared to KRW 274.3 billion, reflecting an 11% increase compared to the previous year. The driving force behind this rise was the exceptional growth in sun care indie brands, outpacing the sluggish performance of legacy brands. The Q2 peak season for sun care products promises even stronger demand, likely amplifying top-line growth as legacy brands' market share dwindles to an estimated 10% from 40%. Notably, the improved mix of Sun Care and Hero SKUs propelled operating margin to a formidable 12.4%, marking the most robust Q1 margin in the company's history.
Chinese Market Revitalization: A Promising Turnaround
Once lagging, the Chinese market witnessed a turnout with a 20% increase in sales, reaching KRW 41.6 billion. Operating profit surged by an astounding 72% YoY, with an OPM of 7.5%. Challenges faced last year due to unit price negotiation issues seem to have been mitigated, as sun care orders from major clients are expected to rise, fostering continued growth in this region.
US Expansion: Riding the Growth Wave
Kolmar Korea's US division demonstrated remarkable sales growth and profit enhancement, with sales escalating by 210% YoY to 21.7 billion won. The operating profit turned positive, up by 300 million won quarter-on-quarter, yielding an OPM of 6.9%. The upswing is attributed to robust orders from key clients and the onboarding of new base makeup customers. With profitability on a promising track for consecutive quarters, the outlook remains optimistic.
Earnings and Valuation: A Strategic Positioning
The current stock momentum is driven by two pivotal factors: the thriving sun care segment and strategic US valuation. With a strong order book in the sun care domain during peak season, record domestic margins are anticipated in Q2. Furthermore, the US operations are poised for growth with the completion of the second plant expected in June. With confirmed clientele and potential new partnerships for onshore production post-tariff policy, Kolmar Korea revised its 25-year US revenue guidance upwards from KRW 80 billion to KRW 90 billion.
Reflecting the improved estimates (25F domestic OPM projected at 12.5%) and enhanced valuation (industry multiples), the company has raised its price target to KRW 110,000 from KRW 92,000. Trading at 14x 12FM PER, the stock remains an attractive buy in the market.
Examples from the Market:
-
Tesla's Giga Shanghai: A Parallel in Expansion
- Tesla's expansion of its Giga Shanghai plant parallels Kolmar Korea's US plant development. Both companies leverage strategic geographical expansions to bolster production capacity and market penetration, enhancing profitability and stock appeal.
-
L’Oréal's Digital Acceleration: Emulating Indie Brand Success
- Much like L’Oréal capitalizing on digital acceleration to boost lesser-known brands, Kolmar Korea taps into the indie brand movement, capturing market niches and driving growth against traditional legacy brands.
Conclusion
Kolmar Korea has positioned itself strategically across its core markets, harnessing growth opportunities and operational efficiencies. As it navigates through its peak season and capitalizes on value-driven expansions, the company's future outlook remains bright, reinforced by dynamic market strategies aligning with global industry leaders.
