Bullish Outlook for Kolmar Korea Amidst Peak Season Surprises

1Q25 Review: Korea, China, and US Deliver Higher-than-Expected Results

Kolmar Korea has outstripped market predictions with its 1Q25 performance, marking notable achievements across its primary markets: Korea, China, and the United States. The company reported a revenue of KRW 653.1 billion, a 14% increase YoY, and an impressive 85% rise in operating profit to KRW 59.9 billion.

Domestic Market Performance

In Korea, sales soared to KRW 274.3 billion, an 11% YoY increase, predominantly fueled by the burgeoning popularity of sun care indie brands. While traditional legacy brands face a downtrend, indie brands are showing significant growth. Anticipating further order surges in Q2, which aligns with the sun care sector's peak season, Kolmar Korea expects to strengthen its top-line growth. The company projects legacy brands to decline (10% versus 40% previously estimated), while enhanced product mix in sun care and Hero SKUs have propelled operating margins to an impressive 12.4%, the highest ever for Q1.

Unanticipated Growth in China

Despite previous underperformance, Kolmar Korea's Chinese operations delivered unexpectedly strong outcomes with sales reaching KRW 41.6 billion, up 20% YoY, and operating profit climbing 72% YoY to KRW 3.1 billion (OPM 7.5%). The previous year's challenges, which stemmed from stalled sun care orders due to pricing negotiations, have seemingly been resolved. The resurgence of sun care orders is expected to persist, contributing to a promising future performance in China.

US Market Continues Upward Trend

The US operations maintained their robust growth trajectory, posting sales of KRW 21.7 billion (210% YoY increase) and returning to profitability with an operating profit of KRW 1.5 billion (YoY positive, QoQ +300 million won, OPM 6.9%). Strong customer orders, including launches of new products and acquisition of new base makeup clients, have underpinned this performance. Profitability in the US is anticipated to remain favorable with strong margins for a second straight quarter.

Attractive Future Earnings and Valuation

Kolmar Korea's market positioning is bolstered by an active sun care product surge and a compelling valuation in the US. The current fervent order book and peak season signify record-breaking domestic margins in Q2. Moreover, the imminent completion of the second plant in the US (by June) will enhance production capabilities. Active discussions for onshore production could stimulate further growth, especially in light of recent tariff adjustments. Accordingly, 2025's US revenue guidance has been adjusted upward from KRW 80 billion to KRW 90 billion.

Revised Valuation and Investment Strategy

Reflecting these optimistic projections, Kolmar Korea's price target is raised to KRW 110,000 from KRW 92,000. This accounts for the expected 25F domestic OPM increase to 12.5% and more favorable industry multiples. With the stock trading at a moderate 14x 12-month forward PER, investment analysts maintain a "Buy" recommendation, citing its affordability and growth potential.

Disclaimer: This report is based on current data and trends up to October 2023 and should not be considered as investment advice. Evaluation of stock performance should be continuously reviewed based on the latest market developments.