20171013-三星证券-Risks_reflected,_opportunities_not_8页_502kb

Cosmax (192820) Company Update Summary

Core Content Overview

This document provides an analysis of Cosmax's recent performance and future outlook, focusing on its financial results, market position, and valuation metrics. The analyst maintains a BUY recommendation with a target price of KRW140,000, which represents a 14% upside from the current price of KRW123,000. The company's market cap is at KRW1.2t/USD1.1b, with a float of 10,049,509 shares (71.8% of total shares).

Key Financial Performance

3Q 2017 Highlights:

• Sales: Increased by 21% y-y to KRW225.2b, aligning with the analyst's forecast.
• Operating Profit: Decreased by 6% y-y to KRW11.1b, slightly below the consensus estimate.
• Net Profit: Decreased by 10% y-y to KRW5.4b, also below the consensus.

Financial Margins:

• Operating Margin: 4.9% (down from 5.4% in the previous quarter).
• Net Margin: 2.4% (down from 3.2% in the previous quarter).

Regional Performance

Korea:

• Sales growth: 3% y-y.
• Net profit decline: 26% y-y.
• Net margin: 3.5%, down 1.4% pts y-y.
• The analyst expects margin deterioration to ease in 2H due to a reassessment of investment plans amid China-Korea tensions.

China:

• Sales growth: 42% y-y.
• Net profit growth: 20% y-y.
• Net margin: 5.9%, down 0.8% pts y-y.
• The company's Southeast Asian exports are expected to reach KRW30b in 2017 and KRW50b in 2018.

US Subsidiary

• Sales: KRW10b.
• Net loss: KRW5b.
• The US subsidiary is expected to merge or acquire a local company to separate skincare and makeup production.
• The analyst remains neutral on the US subsidiary due to uncertainty in restructuring costs and funding.

Financial Forecasts

Valuation Metrics

Comparison with Peers

• The analyst's target price of KRW140,000 is based on a 26.5x 2018 P/E multiple, which is in line with the global cosmetics maker average.
• Cosmax is expected to outperform the global average in EPS growth, with an annual growth of 28% over 2017-2019.
• The analyst believes Cosmax should trade at a premium, given its sustained double-digit sales growth despite challenging conditions.

Key Risks and Opportunities

• Risks: Continued margin pressure, especially in Korea and the US subsidiary's performance.
• Opportunities: Growth in China and Southeast Asia, potential restructuring of the US subsidiary, and improved operational efficiency.

Analyst's View

• Maintains BUY recommendation due to strong sales growth and positive long-term outlook.
• No new factors are expected to change Cosmax's fundamentals.
• Recommendation Summary:
  • BUY★★★: 5
  • BUY: 4
  • HOLD: 3
  • SELL: 2
  • SELL★★★: 1

Conclusion

Cosmax is viewed as a solid investment opportunity with potential for growth in the long term. Despite some short-term margin challenges, the company's ability to sustain sales growth and its valuable market position justify the BUY recommendation. The analyst advises monitoring the restructuring efforts of the US subsidiary, as it could significantly impact the company's enterprise value.