BULLINK Portfolio Analysis: Earnings Surprises Await for Peak Season in Kolmar Korea
Overview of 1Q25 Performance: Surprises from Key Markets
Kolmar Korea delivered an outstanding performance in the first quarter of 2025, far surpassing market expectations. The company's revenue hit KRW 653.1 billion, reflecting a robust 14% YoY growth, and operating profit reached KRW 59.9 billion, an impressive 85% YoY increase. These results underscore the company's strong growth trajectory and effective operational leverage across its core markets: Korea, China, and the US.
Domestic Market Dynamics: Sun Care Segment Shines
The domestic market contributed KRW 274.3 billion to the overall sales, marking an 11% YoY increase. This growth was mainly driven by the rising popularity of indie brands within the sun care category, which have outperformed despite the decline of legacy brands. Q2, peaking for sun care products, is expected to witness heightened order volumes, strengthening top-line performance further. The improved mix of sun care and hero SKUs notably enhanced the operating margin to an all-time high of 12.4%.
- Example: A substantial rise in indie brands’ demand reflects a shift in consumer preferences, which might benefit other players in the beauty sector focusing on niche, trendy products.
China Market: Strong Rebound Against Expectations
China, which previously underperformed, yielded surprisingly strong results with sales at KRW 41.6 billion, a 20% YoY increase, and an operating profit of KRW 3.1 billion, up 72% YoY. The turnaround in sales is linked to a resurgence in sun care orders, which suffered last year due to pricing disputes. This positive sales momentum is anticipated to persist.
- Example: This could indicate an easing of the pricing pressures that have hindered many sectors dependent on Chinese consumer demand.
US Market: Sustained Growth Trajectory
The US market consistently displayed high sales growth and improved profitability, recording KRW 21.7 billion in sales, a staggering 210% YoY rise. Operating profit also turned positive, marking KRW 1.5 billion and showing sequential quarterly improvements. The key drivers were strong orders from major clients and successful acquisition of new base makeup clientele. This is Kolmar Korea’s second consecutive quarter of notable profitability improvements, reflecting effective market penetration strategies.
- Example: Companies with diversified global operations could look to Kolmar Korea's strategic approach in the US as a model for leveraging market-specific growth opportunities.
Strategic Outlook and Valuation
Kolmar Korea’s stock is currently buoyed by favorable dynamics in the sun care segment and promising valuation metrics, especially in the US market. With an ongoing strong order book during the sun care peak season and the upcoming completion of a second US manufacturing plant, projected sales potential is considerable. We are raising Kolmar Korea’s US revenue forecast for 2025 from KRW 80 billion to KRW 90 billion.
Consequently, we have increased our price target to KRW 110,000 from KRW 92,000 to account for higher earnings estimates and enhanced valuation (industry multiples). The stock, presently trading at an attractive 14x 12FM PER, remains a strong buy.
- Example: Investors might find Kolmar Korea's valuation metrics appealing compared to industry peers, with opportunities for growth amplified by ongoing operational expansions.
Investment Insight: Kolmar Korea demonstrates a compelling investment narrative amid market uncertainty. With diversified growth avenues, strategic geographical expansions, and favorable industry dynamics, it stands poised for sustained upward trajectory. This analysis should inspire portfolio diversification considerations, especially in sectors experiencing peak seasonal demand like sun care products.
