Korea Consumer Staples 26 July 2018 Amorepacific (090430 KS) Target price: KRW410,000 (from KRW440,000) Share price (26 Jul): KRW268,000 | Up/downside: +53.0% 2Q18 review: earnings likely to have bottomed We expect earnings growth to accelerate for DFS and China from 3Q18 Iris Park (82) 2787 9165
[email protected] Enhanced focus on luxury cosmetics should meet demand in China Reiterating our Buy (1) rating; lowering 12-month TP to KRW410,000 What's new: Amorepacific recorded weaker-than-expected 2Q18 earnings, Forecast revisions (%) mainly due to one-off expenses. We remain positive on the stock as we believe Year to 31 Dec 18E 19E 20E 2Q18 to be the bottom in terms of earnings. Revenue change (4.9) (3.9) (4.5) Net profit change (13.1) (2.4) (3.1) Core EPS (FD) change (13.1) (2.4) (3.1) What's the impact: 2Q18 review. Amorepacific’s 2Q18 revenue came in at Source: Daiwa forecasts KRW1.3tn (+11.5% YoY), in line with expectations. In Korea, revenue resumed growth in 2Q18 (KRW878bn, +9.0% YoY). Even without DFS (KRW305bn, Share price performance +29.3% YoY), pure domestic revenue recorded positive growth on new product (KRW) (%) launches for major brands. We note that it is continuously gaining market share 355,000 125 in both door-to-door and online channels. In China, 2Q18 revenue growth was 321,250 115 in the mid-teens YoY in local currency terms. High-end brands, like Sulwhasoo 287,500 105 and Hera, increased its revenue by 30-50% YoY, offsetting the slowdown in 253,750 95 220,000 85 Laniege and Mamonde.