BULLINK Portfolio: Earnings Surprises Await for Peak Season
Overview of 1Q25 Highlights: Korea, China, and US
Kolmar Korea has unveiled an impressive 1Q25 performance, significantly beating market forecasts. The company reported total revenue of KRW 653.1 billion, marking a 14% year-over-year (YoY) growth, and an operating profit soaring to KRW 59.9 billion, an 85% YoY increase. These numbers highlight Kolmar Korea's robust growth trajectory and efficient operational leveraging, particularly within its key markets: Korea, China, and the United States.
Domestic Upsurge: Sun Care's Bright Future
In Korea, Kolmar's domestic sales reached KRW 274.3 billion, reflecting an 11% YoY surge. This growth is primarily attributed to the flourishing sun care indie brands, which outpaced the overall market expansion as traditional legacy brands saw a decline. With Q2 upon us — the peak season for sun care — increased orders from key sun care brands are anticipated. We project further top-line growth as the market shifts, with legacy brands expected to contract from 40% to 10%. This favorable shift in the sun care and Hero SKU mix has resulted in a strong operating margin of 12.4%, the highest for any first quarter.
China Rebounds: A Surge in Demand
In a surprising turn, Kolmar Korea's China division posted significant gains after a period of underperformance. Sales climbed to KRW 41.6 billion, a 20% YoY increase, while operating profit jumped to KRW 3.1 billion, reflecting a 72% YoY increase with an operating profit margin of 7.5%. Last year, the sun care segment faced challenges due to unit price negotiations, but this year shows promise with anticipated continued order inflow.
US Momentum: Growth and Market Penetration
The US market continues to shine, showing remarkable sales growth and profit enhancement. Revenues reached KRW 21.7 billion, a 210% YoY increase, with an operating profit of KRW 1.5 billion. This reflects a positive YoY shift and an increase of KRW 300 million quarter over quarter, achieving a 6.9% operating profit margin. Key customer orders, including new product lines and base makeup clients, have solidified a profitable trajectory for the second consecutive quarter.
Investment Outlook: Strong Earnings and Valuation Prospects
Kolmar Korea’s stock momentum is largely driven by the strong performance in its sun care department and favorable US valuations. With the sun care sector experiencing robust order intake during its peak season, we anticipate record-breaking domestic margins in Q2. In the US, a second manufacturing facility is slated for completion in June. Beyond existing customers, ongoing negotiations with several brands for onshore production post-tariff policy are underway. This has led us to increase our US revenue forecast for 2025 from KRW 80 billion to KRW 90 billion, based on the encouraging order book for Plant 1 and forecast trends for Plant 2.
Consequently, we are revising our price target upward from KRW 92,000 to KRW 110,000, accounting for higher earnings projections (domestic OPM estimated at 12.5% for 2025) and improved valuations reflected in industry multiples. With the current stock trading at a 14x 12FM PER, the valuation remains appealing. Our "Buy" recommendation stands firm.
Examples for BULLINK Portfolio:
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Case Study: Tesla's Q3 2023 Earnings Beating Expectations: Reports showed remarkable revenue growth due to demand increases in China and improved production efficiencies in their Berlin gigafactory.
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Analysis: Ethereum's Latest Merge Boosting Long-term Valuation: The significant reduction in energy consumption and expansion of staking capabilities have led to a bullish outlook among investors.
These examples illustrate the profound impact of strategic market movements and operational efficiencies on earnings performance, as similarly observed in Kolmar Korea’s strategic maneuvers in the skincare industry.
