Kolmar Korea, Cosmax hit by downgrades

By Lee Hyo-sik

• Published Feb 17, 2016 4:41 PM KST
• Updated Feb 17, 2016 4:41 PM KST

Kolmar Korea and Cosmax, Korea’s two major cosmetics original design manufacturers (ODMs), are feared to have reached their peak, according to securities firms, Wednesday.

The two companies, which have been growing rapidly on China’s soaring demand for made-in-Korea cosmetics, recently announced their fourth-quarter earnings results, which fell short of market expectations.

With a poorer-than-expected performance because of China’s slowing domestic market, brokerage houses have been rushing to lower target prices for the two firms. Shares of Kolmar Korea and Cosmax have been hammered this month, declining over 25 percent.

NH Investment & Securities issued a report Wednesday, saying it is cutting its target price for Kolmar Korea, headed by Chairman Yoon Dong-han, to 100,000 won from the previous 130,000 won a share.

“The firm’s fourth-quarter results were much lower than market consensus,” NH analyst Han Kook-hee said. “With the growing China risks in recent months, we have been lowering our outlook for the cosmetics sector. Accordingly, we are reducing valuations for Kolmar Korea. Its share price has fallen some 25 percent in February and may come down a little further.”

In the final quarter of 2015, the company posted a 12.9 billion won operating profit, down 6 percent from the previous year.

Its shares fell 12.36 percent to close at 70,900 won in Wednesday trading.

Cosmax, headed by Chairman Lee Kyung-soo, has seen its shares plunge in recent weeks in line with its sluggish fourth-quarter performance.

The company earned 135.7 billion won in sales, falling short of the market estimate of 142 billion won. Its operating profit was 5 billion won, significantly lower than the market consensus of 11 billion won.

On Wednesday, Daishin Securities cut its target price for Cosmax to 200,000 won from the previous 240,000 won a share, saying the shares are overvalued.

“Weary of Cosmax’s high price-earnings ratio and growing China risks, investors have dumped its shares over the past week,” Daishin analyst Park Shin-ae said. “The stock may fall below 120,000 won per share in the coming months.”

On Wednesday, Cosmax shares plummeted 10 percent to 125,000 won from the previous close.

Hana Financial Investment also cut its target price to 220,000 won from the earlier 266,000 won, citing the firm’s slowing China business.

“Cosmax’s China unit has been grappling with falling orders from Chinese buyers in recent months,” Hana analyst Park Jong-dae said.

Samsung Securities also lowered the target price to 190,000 won from 240,000 won.

“The firm’s fourth-quarter results didn’t meet market expectations because of its rapidly falling sales in China,” Samsung analyst Park Eun-kyung said. “We also decided to lower the 2016 outlook for Cosmax. Investors should remain cautious for the time being.”