20160415-三星证券-Riding_a_new_wave_of_exports_34页_1mb

Sector Update Summary: Household Goods (2016.4.15)

Core Content

The document presents an update on the Korean household goods and cosmetics sector, with a focus on the potential for continued growth driven by strong export performance. The analyst, Eunkyung Park, raises the growth estimates for the cosmetics industry to 16% year-over-year (y-y) for 2016, citing a sharp increase in cosmetics exports in March, which suggests the start of another "K-beauty" wave similar to the one in 2014.

The sector is rated as OVERWEIGHT, indicating a positive outlook. Amorepacific and Cosmax are highlighted as top picks due to their significant overseas exposure.

Main Points

• Cosmetics Export Growth:

  • The cosmetics industry is expected to grow 16% y-y in 2016.
  • March data exceeded expectations, signaling a new wave of export growth.
  • Korean cosmetics exports are projected to grow between 12% and 62% in 2016, with corresponding impacts on the domestic market growth.

• Sector Outlook:

  • The sector remains OVERWEIGHT due to strong earnings momentum from exports.
  • The analyst advises focusing more on earnings momentum than on valuations.

• Top Picks:

  • Amorepacific:
    • Rated BUY with a target price of KRW480,000 (up 14.3% from previous estimate).
    • Expected to post 22% y-y sales and 18% y-y operating profit in 1Q16, both above consensus.
    • Overseas sales are a key driver, with a 50% y-y increase expected for overseas subsidiaries.
  • Cosmax:
    • Rated BUY with a target price of KRW180,000.
    • Expected to grow sales by 34.2% y-y and operating profit by 59.1% y-y in 1Q16.
    • Strong overseas exposure and potential for growth.

• Company Performance:

  • The five major Korean cosmetics companies are expected to have combined sales and operating profit growth of 17% and 22% y-y in 1Q16, respectively, both beating the consensus.
  • LG Household & Health Care is expected to have the largest beat in operating profit.
  • Able C&C is expected to outperform peers on a full-year basis, followed by AmoreG, Amorepacific, Cosmax, and LG H&H.

Key Information

• Amorepacific:

  • Sales: KRW1,463.1b in 1Q16, up 21.5% y-y.
  • Operating profit: KRW328.5b, up 18.2% y-y.
  • EPS forecast increased by 4% to KRW11,193.
  • Target price raised to KRW480,000 (a 20.3% premium over current price).

• AmoreG:

  • Sales: KRW1,706.7b in 1Q16, up 18.2% y-y.
  • Operating profit: KRW384.1b, up 19.8% y-y.
  • EPS forecast increased by 4.1% to KRW9,475.
  • Target price raised to KRW230,000.

• LG Household & Health Care:

  • Sales: KRW1,472.8b in 1Q16, up 13.1% y-y.
  • Operating profit: KRW226.0b, up 26.6% y-y.
  • EPS forecast increased by 4.2% to KRW5,963.
  • Target price raised to KRW1,220,000.

• Cosmax:

  • Sales: KRW148.4b in 1Q16, up 27.6% y-y.
  • Operating profit: KRW10.2b, up 34.1% y-y.
  • EPS forecast increased by 5.7% to KRW35.8b.
  • Target price raised to KRW180,000.

• Able C&C:

  • Sales: KRW98.0b in 1Q16, up 11.8% y-y.
  • Operating profit: KRW1.5b, up 60.8% y-y.
  • EPS forecast increased by 16.6% to KRW23.3b.
  • Target price raised to KRW41,000.

Financial Highlights

• Sales and Operating Profit Growth:

  • 1Q16 sales for the five major companies are expected to grow 17% y-y.
  • Operating profit is expected to grow 22% y-y.

• Valuation Metrics:

  • P/E: Amorepacific's 2016E P/E is 36.1x, with a target of 43.2x.
  • P/B: Amorepacific's P/B is 6.9x, while Cosmax's is 3.5x.
  • EV/EBITDA: Amorepacific's EV/EBITDA is 30.8x, with a target of 28.3x.

Conclusion

The cosmetics sector in Korea is expected to benefit significantly from strong export growth, particularly in the "K-beauty" segment. The analyst maintains an OVERWEIGHT rating and recommends focusing on earnings momentum over valuations. Amorepacific and Cosmax are highlighted as top picks due to their heavy reliance on overseas markets, which are expected to drive substantial growth. The report also outlines the financial performance of each company, with optimistic forecasts for sales and operating profit in the first quarter of 2016.