Earnings Surprises Await for Peak Season
1Q25 Review: Surprises from Korea, China, and the US
Kolmar Korea delivered impressive 1Q25 results, exceeding market expectations with revenue of KRW 653.1 billion, marking a 14% year-over-year (YoY) increase. The operating profit soared to KRW 59.9 billion, an 85% rise YoY, reflecting robust growth and operational efficiency across critical markets: Korea, China, and the US.
Domestic Triumphs in Sun Care
- Domestic sales reached KRW 274.3 billion, up by 11% YoY. This growth was primarily fueled by sun care indie brands, which significantly outperformed, while legacy brands continued their decline. Q2 marks the peak season for sun care products and current order trends for key brands suggest an acceleration in top-line growth. We anticipate legacy brands' contribution to shrink further to 10% from 40%, strengthening the market share of indie brands. Improved product mixes in sun care and hero SKUs boosted the operating margin to a record 12.4% for Q1.
Strengthened Position in China
- Surprising results came from China, with sales climbing to KRW 41.6 billion, a 20% increase YoY, and operating profit soaring 72% YoY to KRW 3.1 billion, with an operating profit margin (OPM) of 7.5%. Despite sluggish sun care orders last year due to pricing debates, this year's demand resurgence suggests a continuing trend of growth in this region.
US Growth Momentum
- The US market maintained its high growth trajectory, boasting sales of KRW 21.7 billion, a staggering 210% YoY growth, and an operating profit of KRW 1.5 billion, marking a positive outcome YoY and a KRW 300 million QoQ increase, with a 6.9% OPM. The strength in orders from key and new customers, particularly in base makeup, positions the US operations for sustained profitability in the coming quarters.
Attractive Earnings and Valuation Outlook
The momentum in sun care products and favorable valuations in the US are key drivers for Kolmar Korea's stock. The sun care sector is currently experiencing robust demand with the upcoming peak season, which bodes well for achieving record domestic margins in Q2. With the completion of the second US plant slated for June, coupled with ongoing talks with potential new customers post the tariff policy, we are revising our 2025 US revenue forecast from KRW 80 billion to KRW 90 billion.
Updated Financial Guidance
To reflect this optimistic outlook, we are adjusting our price target for Kolmar Korea to KRW 110,000 from KRW 92,000, accounting for increased forecasts (25F domestic OPM of 12.5%) and improved valuation metrics. The stock currently trades at a 14x forward P/E, presenting an attractive buy opportunity.
