Korea’s cosmetics stocks plunge as demand from China remains weak

2023. 3. 16. 12:27
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Shares of cosmetics companies in South Korea have declined as China’s economic stimulus package fell short of expectations and Chinese rivals have gained more ground against South Korean players.

Korea’s major cosmetics stocks, which had hoped to benefit from China’s stimulus plan, continued to decline after March 5. According to Korea Exchange on Wednesday, shares of LG Household & Health Care Co. fell 12.72 percent and Amorepacific Corp. slipped 13.38 percent.

Net selling from foreign and institutional investors led the decline. Foreign and institutional investors each sold 53.9 billion won ($41.1 million) and 26.4 billion won in LG Household & Health Care shares between March 6 and 15, according to Korea Exchange. They also net sold shares of Amorepacific worth 36.8 billion won and 28.2 billion won, respectively.

In its report to the National People’s Congress on March 5, the Chinese government presented this year’s economic growth target of around 5 percent, which is lower than expected and the lowest since the Chinese government began presenting economic growth targets in 1994. Although the two sessions ended on Monday, no announcement was made on a stimulus package to revive domestic demand.

“The economic growth target is a conservative figure that falls short of financial market’s expectations and there was no surprise in the real estate sector that had been in focus,” said Choi Seol-hwa, an analyst at Meritz Securities Co.

First-half earnings at cosmetics companies are expected to worsen as demand for cosmetics in China is not likely to pick up any time soon on the absence of any stimulus measures. Despite a rise in revenge buying following China’s reopening of economic activity, consumer spending has not increased much. According to China’s National Bureau of Statistics, consumer price index rose 1 percent in February from a year ago, which is below the market forecast of 1.9 percent and the previous month’s 2.1 percent. This is due to reduced household spending power that dipped greatly during the pandemic and sluggish job growth, according to analysts.

Duty-free sales at cosmetics companies are expected to remain flat in the first quarter of this year. “Duty-free sales at LG Household and Amorepacific in the first quarter will decline by more than 30 percent from a year earlier,” said Park Hyun-jin, an analyst at Shinhan Securities Co. “Shares are not likely to gain unless Chinese demand recovers.”

Exports of Korean cosmetics to China are also declining. According to the Korea Customs Service, exports of skincare products to China last year fell for the first time in five years, down 31.4 percent to $1.95 billion. The per-ton price of skincare products for exports also fell to $29,000 in December last year and to $23,000 in January from the previous $30,000-$40,000.

LG Household and Amorepacific are expected to post weak earnings in the first quarter as sales at the two companies account for about 36 percent of the total overseas revenue. According to market data tracker FnGuide, LG Household’s January-March operating profit is projected to rise by 0.46 percent from a year ago to 176.4 billion won. Amorepacific is estimated to post 117.8 billion won in operating profit, a 25.44 percent drop from the same period last year.

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