Korea’s National Pension Service adds mid-cap cosmetics stocks to portfolio

[Photo by Lee Seung-hwan]

South Korea’s National Pension Service (NPS), the world’s third-largest pension fund, has reduced its holdings in entertainment stocks such as JYP Entertainment Corp. and YG Entertainment Co. in the second quarter and added more small- and mid-cap cosmetics stocks.

According to the Financial Supervisory Service’s electronic disclosure system on Wednesday, the NPS sold 382,094 shares of JYP Entertainment, reducing its stake to 4 percent from 5.07 percent. The offloading took place on April 13, and it sold about 30.8 billion won ($23.64 million) based on the closing price of 86,000 won.

The NPS also sold 426,803 shares of YG Entertainment last week, reducing its holdings from 9.41 percent to 7.12 percent. The sale amounted to about 33.5 billion won.

The state-run pension fund is required to disclose its holdings by the 10th day of the month following the quarter in which it is obligated to report any new acquisition of a stake that is 5 percent or more in a company, 1 percent or greater stake change, or a change in holding purpose.

As JYP Entertainment and YG Entertainment recorded high stock price gains of 100 percent and 70 percent, respectively, this year, it is interpreted that the pension fund is trying to realize profits by selling its holdings.

The NPS, however, purchased an additional 436,714 shares of HYBE Co. on May 30, increasing its stake to 7.53 percent from 6.62 percent.

HYBE has a stable multi-label system, and most of its artists, including BTS, SEVENTEEN, LE SSERAFIM, and NewJeans, have been successful.

Following the company’s surprising first-quarter earnings announcement, expectations for strong second-quarter results have increased, resulting in 47 price target upgrades this year. The highest price target is 370,000 won released by NH Investment & Securities Co. and eBEST Investment & Securities Co.

The NPS also reduced its stake in large brand cosmetics stocks.

[Courtesy of Cosmax]

Amorepacific Corp. disclosed that the holding by NPS fell to 6.35 percent as of June 14 from 7.39 percent. LG Household & Health Care Ltd. also said the NPS stake fell to 6.99 percent as of June 30 from 8.03 percent.

On the other hand, the NPS upped its holdings in small- and mid-cap cosmetics stocks, increasing its stake in Cosmax Inc. to 13.23 from 12.20 percent, Korea Kolmar Co. to 11.64 percent from 9.55 percent, C&C International Co. to 8.49 percent from 5.15 percent, and CLIO Cosmetics Co. to 5 percent from 4.93 percent.

While Amorepacific and LG Household & Health Care have seen their stocks decline for the second year in a row due to sluggish sales in China, small- and mid-cap cosmetics stocks are gaining attention due to rising demand for color cosmetics and increasing sales in non-China regions.

High growth is also expected for original equipment manufacturers (OEMs) and original development manufacturers (ODMs) as global exports of small- and medium-sized cosmetics brands have revitalized.

“Due to changes in the Chinese cosmetics market such as intensified competition, online shift, and slowdown in exports to China by the big two companies due to China’s ban on Korean products and Covid-19, the share of the big two companies in cosmetics exports fell to 35 percent in the first quarter of this year from 80 percent in 2012,” said Jung So-yeon, an analyst at Kyobo Securities Co.

“On the other hand, the market share of small and medium-sized cosmetics companies rose to 65 percent in the first quarter from a mere 20 percent in 2012,” Jung added.

“C&C International will continue to deliver its best-ever quarterly performance in the second quarter,” said Ha Nuri, an analyst at Meritz Securities Co. “The company has benefited from the trickle-down effect of strong sales from key partners such as rom&nd and CLIO, and is actively attracting new U.S. clients.”

“The trend of rising demand for tinted products at home and abroad is expected to continue for the foreseeable future, thanks to the lifted mask mandate and increased external activities,” said Cho So-jeong, an analyst at Kiwoom Securities Co.