Earnings Surprises Await for Peak Season
1Q25 Review: Impressive Performance in Korea, China, and the US
Kolmar Korea's 1Q25 results have indeed taken the market by surprise, showcasing remarkable growth that surpassed expectations. With a revenue of KRW 653.1 billion, marking a 14% year-over-year increase, and an impressive 85% jump in operating profit to KRW 59.9 billion, the company has demonstrated robust growth and significant operating leverage across its major business regions: Korea, China, and the United States.
Korea's Domestic Strategy:
In Korea, domestic sales soared to KRW 274.3 billion, an 11% increase compared to the previous year. This uptick was primarily fueled by the booming sun care category, especially among indie brands, which have outperformed legacy brands significantly. With Q2 being the peak season for sun care, more orders for key brands are anticipated, strengthening top-line growth further. The legacy brands, now contributing 10% to the market compared to 40%, are shrinking, offering room for sun care to flourish. This shift in focus, alongside a refined mix of Sun Care and Hero SKUs, has driven the operating margin to a staggering 12.4%, marking the strongest Q1 margin in history for the company.
China's Re-emergence:
China, which had been underperforming in prior quarters, posted unexpectedly strong results with sales hitting KRW 41.6 billion—a 20% increase year-over-year—and an operating profit increase of 72% year-over-year to KRW 3.1 billion, with an OPM of 7.5%. Last year's challenges, primarily stemming from unit price negotiation issues with major customers, have been overcome, and sun care orders are recovering, expected to remain buoyant for the foreseeable future.
U.S. Market Momentum:
The U.S. segment continues its trajectory of significant growth with sales reaching 21.7 billion won, marking a staggering 210% year-over-year increase. Operating profit has shifted to the positive with an improvement of 300 million won quarter-on-quarter, placing the OPM at 6.9%. Strong orders from key customers, introduction of new products, and securing of new base makeup clients indicate a robust performance for the second consecutive quarter, positioned for continued meaningful margins.
Earnings and Valuation Outlook
Kolmar Korea's stock is gaining momentum driven by its flourishing sun care division and favorable U.S. market dynamics. These factors augur well for the company. As we head into the peak season for sun care, domestic margins are expected to hit record highs in Q2.
In the U.S., strategic expansion is on the horizon with the imminent completion of a second plant in June. Beyond confirmed customers, Kolmar Korea is actively engaging several brands for onshore production, adapting to the new tariff policies. With orders from the first plant and promising sales trends from the second, the 2025 U.S. revenue guidance is being raised from KRW 80 billion to KRW 90 billion.
Given these developments, we have adjusted our price target upwards to KRW 110,000 from KRW 92,000, factoring in the anticipated higher estimates (with a forecasted domestic OPM of 12.5% for 2025) and an upward revision in valuation based on industry multiples. Trading currently at 14x 12-month forward price earnings ratio, the stock remains attractively priced. Our recommendation is to maintain a Buy stance on the stock.
This BULLINK portfolio article transformation into a report emphasizes the underlying growth drivers, financial metrics, and strategic initiatives that underpin Kolmar Korea's performance, positioning the company favorably for investors looking to capitalize on its ongoing success.
