Stocks of Korean companies reliant on China rise as reopening takes effect

LG H&H Co. and Amorepacific Group‘s logos [Courtesy of each company]

Shares of South Korean companies that are dependent on sales from China are rising on growing optimism that the resumption of economic activities in the neighboring country may soon translate into higher demand.

One of the most significant beneficiaries are cosmetics makers on the back of expectations of higher makeup sales in China and in duty-free shops. Another factor was the higher-than-expected first-quarter economic growth in China announced Tuesday.

According to the Korea Exchange on Tuesday, LG H&H Co. closed 5.1 percent higher at 680,000 won ($515.93). Amorepacific Group and Amorepacific Corp. also saw prices move up, each by 6.91 percent and 5.18 percent.

Other shares also rose. Duty-free outlet operator Hotel Shilla Co. rose 3.59 percent, fashion apparel maker F&F Co. gained 4.40 percent and food company Orion Corp. climbed 2.30 percent.

“Earnings will improve following a likely upturn in second-quarter sales in China, as Chinese consumption recovers,” said an analyst at Hanwha Investment & Securities Co. A boost is also expected in cosmetics sales during the upcoming Chinese Labor Day holiday that falls between April 29 and May 3.

Makeup stocks were expected to benefit last month from the easing of China’s Covid regulations and economic stimulus measures ahead of the National People’s Congress and the Chinese People’s Political Consultative Conference. However, the expected rise did not come after a rather conservative economic growth target by Chinese authorities and sluggish consumption across the nation. Sales of Korean subsidiaries based in China were weak and duty-free sales were sluggish as there was no hike in the number of Chinese tourists entering Korea.

[Photo provided by The Shilla Duty Free]

The shift has come as the Chinese government allowed group tours to return to Korea, which has prompted airlines from both countries to increase flights and helped duty-free sales to rebound.

It is noted, in particular, that credit card purchases of cosmetics by foreigners surged last month. According to data from BC Card Co. concerning foreigners’ card spending in Korea over the past two years, spending on cosmetics jumped 99.86 times last month compared to March 2021.

“In March, the number of Chinese tourists visiting Korea increased, and from May, more Korea-China flights will be available,” said an analyst at Shinhan Securities Co. “Some Korean cosmetics brands are seeing double-digit growth in sales in China, which are driving down inventory levels.”

“Demand for cosmetics in China is recovering compared with a month before and the underlying pressure in the second quarter is relatively low,” said an analyst at Kiwoom Securities Co. “Although there are uncertainties concerning duty-free shops and the recovery in the Chinese cosmetics market is still slow, a full-scale rebound is expected to come in the second quarter.”