Earnings Surprises Await for Peak Season
1Q25 Review: Korea, China, and US Surprises
Kolmar Korea's 1Q25 Performance Exceeds Expectations
Kolmar Korea showcased an impressive performance for 1Q25, surpassing market forecasts with a revenue of KRW 653.1 billion, marking a 14% year-over-year increase, and an operating profit of KRW 59.9 billion, up by 85% from the previous year. The notable growth was fueled by operating leverage across its primary markets: Korea, China, and the US.
Domestic Market Growth Driven by Sun Care Brands
Domestic sales surged to KRW 274.3 billion, an 11% YoY increase, attributed mainly to the burgeoning popularity of sun care indie brands. These indie brands are outpacing industry averages, even as legacy brands witness a decline. Entering Q2, the peak season for sun care products, demand for key brands is projected to intensify. We anticipate a robust top-line growth as indie brands capture a larger market share, reducing legacy brands' dominance from 40% to an estimated 10%. The refined product mix, especially in sun care and hero SKUs, boosted operating margins to 12.4%, the strongest recorded for any first quarter.
Unexpected Momentum in China
China, which had previously lagged, reported stronger-than-anticipated results. Sales reached KRW 41.6 billion, a 20% YoY uptick, while the operating profit was KRW 3.1 billion, jumping 72% YoY, with an OPM of 7.5%. Despite last year's setbacks due to pricing negotiations affecting sun care orders, this year signals a resurgence. Orders are projected to continue their upward trajectory.
US Market: Leading the Charge in Growth
The US market sustained its high growth momentum, recording sales of KRW 21.7 billion, a staggering 210% increase YoY. Operating profit turned positive, at KRW 1.5 billion, and improved quarter-over-quarter by KRW 300 million, with an OPM of 6.9%. Key customer orders remained strong, bolstered by the introduction of new products and the acquisition of new base makeup clients. With these strategic wins, US operations are poised for profitability for the second consecutive quarter.
Positive Outlook on Earnings and Valuation
Kolmar's stock is buoyed by the sun care segment's momentum and favorable US valuations. Presently, the sun care order pipeline is robust, aligning with the peak season. Record domestic margins in Q2 appear likely. In the US, the upcoming completion of a new plant in June, coupled with ongoing dialogues with brands about onshore production post-tariff policy adjustments, offers optimism. Consequently, the 2025 revenue forecast for the US has been revised upwards from KRW 80 billion to KRW 90 billion.
We have adjusted our price target to KRW 110,000 from KRW 92,000, reflecting higher domestic OPM estimates for 2025 (12.5%) and favorable industry valuation multiples. The stock currently trades at a reasonable 14x 12FM PER. Our recommendation to buy remains steadfast.
Note: All figures are in KRW billion unless otherwise stated.
