Shares of Korea’s cosmetics OEMs, ODMs outperform major brands

Kolmar Korea Co. factory [Courtesy of Kolmar Korea]

Shares of The stock prices of cosmetics original equipment manufacturers and original design manufacturers such as Kolmar Korea Co. and COSMAX Inc., are outperforming those of big brands such as LG Household & Health Care Ltd. and Amorepacific Corp.

This trend emerges as Korean cosmetic brands face intense competition and weakened market position in China, while OEMs and ODMs fully benefit from the expanding product demand. Experts say this situation will likely persist for the foreseeable future.

According to the Korea Exchange on Wednesday, shares of LG Household & Health Care have declined 9.77 percent this month and the stock even reached a 52-week low at 471,000 won ($360) during the day. Similarly, Amorepacific shares fell 4.88 percent. On the other hand, Kolmar Korea has risen 17.69 percent, COSMAX 18.24 percent, C&C International Co. 12.02 percent and Cosmecca Korea Co. 42.99 percent this month.

The lackluster performance of major cosmetic brands can be attributed to their declining market share in China, which has served as their primary market. As competition with local Chinese brands intensifies, Chinese consumers are increasingly favoring homegrown products. Furthermore, the recovery of duty-free sales has been sluggish due to reduced demand from daigou agents who buy goods in bulk to sell to consumers in China.

Conversely, companies that adopt the ODM and OEM approach, producing and supplying products to cosmetic brands instead of establishing their own, present promising prospects. The intensified competition among major cosmetic brands contributes to an expansion of the customer base for ODM and OEM companies.

Forecasts suggest that the operating profit of South Korean ODMs and OEMs will increase by about 1.5 to 2 times compared with the previous year, according to Kyobo Securities Co.

The market share of LG Household & Health Care and Amorepacific in the total cosmetic exports dropped to 35 percent in the first quarter of this year from 80 percent in 2012. In contrast, the market share of small and medium-sized companies grew to 65 percent from 20 percent during the same period.

Industry experts view companies specializing in ultraviolet protection products or color cosmetics in a positive light. These companies are expected to benefit significantly from the expansion of travel and outdoor activities. Noteworthy examples include C&C International, known for its color cosmetics, and Kolmar Korea, which excels in the production of UV protection products.