Earnings Surprises Await for Peak Season
1Q25 Review: Korea, China, and US Outperform Expectations
Kolmar Korea has pleasantly surprised the market with its 1Q25 results, achieving both revenue and operating profit figures significantly above projections. The company's revenue amounted to KRW 653.1 billion, reflecting a robust 14% year-over-year (YoY) increase, while operating profit soared by 85% YoY to stand at KRW 59.9 billion. This positive outcome is primarily attributed to strong growth and improved operating leverage in key markets, specifically Korea, China, and the United States.
Domestic Market: Sun Care Brands Shine Bright
In the domestic arena, Kolmar Korea's sales reached KRW 274.3 billion, an 11% YoY improvement. A major driver of this performance was the sun care segment, where indie brands stole the spotlight, significantly outperforming the overall market even as legacy brands saw a decline. With Q2 representing the peak season for sun care products, the company anticipates a continued increase in orders for its key brands. Notably, the enhanced mix of sun care and "Hero SKU" products led to an impressive operating margin of 12.4%, marking the strongest Q1 margin in the company's history.
China: A Turnaround Story
After a period of underperformance, Kolmar Korea's operations in China posted unexpectedly strong results with sales rising to KRW 41.6 billion, marking a 20% YoY increase. Operating profit also surged by 72% YoY to KRW 3.1 billion, resulting in an operating profit margin (OPM) of 7.5%. This comeback was fueled by a rebound in sun care orders from major customers following the resolution of prior unit price negotiation issues. This positive trend in sun care demand is anticipated to persist in the near term.
United States: Sustained Growth and Profitability
The US market continued its impressive growth trajectory, with sales expanding by a remarkable 210% YoY to reach KRW 21.7 billion. The region also showed a positive shift in quarterly profits, with operating profit of KRW 1.5 billion, reflecting a quarter-on-quarter increase of KRW 300 million and an OPM of 6.9%. Increased orders from key customers, introduction of new products, and the acquisition of new base makeup customers contributed to this robust performance. Kolmar Korea is on track to maintain profitability with meaningful margins for a second consecutive quarter.
Earnings and Valuation Take Center Stage
Kolmar Korea's stock is gaining momentum driven by the dual forces of thriving sun care demand and appealing valuation in the U.S. With the peak season amplifying sun care orders and anticipated record domestic margins in Q2, the outlook is promising. Furthermore, the scheduled completion of the second U.S. plant in June is set to capitalize on confirmed customer orders and negotiations with new brands eager to relocate production onshore in response to tariff policies. Reflecting these developments, the company has revised its 25-year U.S. revenue guidance upwards, from KRW 80 billion to KRW 90 billion.
In light of higher earnings forecasts (25F domestic OPM of 12.5%) and improved industry valuations, we are increasing our price target from KRW 92,000 to KRW 110,000. The stock, currently trading at 14x 12FM PER, presents an attractive investment opportunity. We maintain a "Buy" recommendation.
Portfolio Impact Example:
Consider a tech-forward diversified portfolio where you have equally weighted holdings across sectors. Including Kolmar Korea could significantly enhance performance, especially if you are keen on leveraging growth in the skincare sector. In a market thriving on innovation and regional diversification, Kolmar's strategic positioning and operational improvements could provide a defensive anchor amidst market volatility, especially in the health and beauty sectors.
