Portfolio Report: Earnings Surprises Await for Peak Season
1Q25 Review: Outstanding Performance Across Korea, China, and the US
Kolmar Korea (KR: KOLMAR) has delivered exceptional financial performance in the first quarter of 2025, surpassing market expectations. The company reported a revenue of KRW 653.1 billion, reflecting a significant 14% year-over-year (YoY) increase, alongside an impressive operating profit of KRW 59.9 billion, up by 85% YoY. These achievements underscore Kolmar Korea's robust growth and operational efficiency across its three key regions: Korea, China, and the United States.
Key Insights:
-
Korean Market Performance: The domestic segment achieved sales of KRW 274.3 billion, marking an 11% YoY growth, largely driven by the booming sun care indie brands. These emerging brands are outperforming traditional legacy brands, which are witnessing a decline. With Q2 marking the peak season for sun care products, increased orders are expected to fortify top-line growth. The shifting market dynamics are evident with legacy brands accounting for a mere 10% of sales compared to a previous 40%. The improved product mix has driven the operating margin to a record 12.4% this quarter.
-
Resurgence in China: Contrary to past underperformance, China delivered strong results with sales of KRW 41.6 billion, a 20% YoY increase. Operating profit saw a 72% YoY surge, achieving an operating profit margin (OPM) of 7.5%. The rebound is credited to a recovery in sun care orders, unaffected by last year's pricing negotiations, and is expected to continue on this growth trajectory.
-
US Growth Trajectory: Kolmar’s US operations have continued their explosive sales growth and profit enhancement. The sales of KRW 21.7 billion represent a 210% YoY increase, with an operating profit of KRW 1.5 billion. Noteworthy is the addition of new customers in the base makeup segment, enhancing the customer base and sustaining profitability.
Attractive Earnings and Valuations
Kolmar Korea's stock is buoyed by the momentum in its sun care sector and favorable valuations in the US market. With the company's existing strong order book, a record domestic margin in Q2 is anticipated. The completion of their second US plant in June further bolsters growth prospects, with ongoing discussions for onshore production post-tariff policy adjustments. This strategic positioning justifies a revision of the 2025 US revenue guidance from KRW 80 billion to KRW 90 billion.
Investment Outlook
In response to the revised earnings estimates, we have adjusted our price target to KRW 110,000 from KRW 92,000. The stock, presently trading at 14 times the 12-month forward price-to-earnings ratio (12FM PER), presents an enticing investment opportunity. We maintain our 'Buy' recommendation given the strategic advancements and value proposition.
Conclusion
Kolmar Korea stands poised for a prosperous fiscal year, driven by its strategic market diversification and operational proficiency. Stakeholders and potential investors should regard this period as a promising chapter in the company's growth narrative, reflecting the strategic foresight and market adaptability that characterizes Kolmar’s operations.
Note: This report has been crafted using insights as of October 2023 and should be evaluated considering market conditions and disclosures subsequent to this period.
