Cosmetics, cigarette giants take market beating

By Kwaak Je-yup

Two blue chips have been struggling in the stock market, due to sluggish performances in the fourth quarter last year.

The sentiment for this year seems remarkably mixed, with analysts unable to come to an agreement for cosmetics leader Amore Pacific and No. 1 tobacco company KT&G.

Amore Pacific has been falling below and recovering the psychologically-significant 1-million-won line repeatedly in the last week. Its 52-week high was recorded in October, at 1.325 million won per share. On Friday, the stock went up 1.96 percent, or 20,000 won, to 1,038,000 won.

Analysts, nonetheless, seem unenthusiastic. The fourth-quarter revenue from the country’s most profitable door-to-door sales channel improved only 1.6 percent from a year before, while supermarkets generated 3 percent less.

The sales in department and duty-free stores, while performing 16.8 percent better than the 2010’s fourth quarter, were pale compared to the first three quarters of 2011, which posted more than 20 percent year-on-year growth. KTB Investment & Securities estimated that the 4Q revenue was 49.3 billion won, up 1.9 percent.

There have been no public merger and acquisition plans at Amore, while competitor LG Household & Healthcare grew considerably last year through aggressive purchases.

Amore plans to increase the number of door-to-door salespeople this year, which some analysts view as positive contribution. But, KB investment & Securities considers this move to have little impact.

The only silver lining is the Chinese market, where the company’s revenue grew 35 percent last year. It intends to diversify the distribution channels there and also launch its mass-market low-cost brand Innisfree.

KT&G, the country’s leading tobacco manufacturer that has ginseng maker Korea Ginseng Corp. as an affiliate, ended a two-day losing streak, although it looked shaky in the morning session.

The lower-than-expected fourth-quarter performance disappointed investors. Traders are calling the latest fall the “hongsam shock,” after the local name for the red ginseng variety. The fourth-quarter revenue went down 7.8 percent year-on-year to 188.3 billion won and the net profit plummeted 72.3 percent to 10.5 billion won from the same period of the previous year.

Analysts attributed this to sluggish exports, which fell 45.6 percent, the rising cost of raw materials, salary hikes and increased marketing fees. The dramatic net profit tumble was due to legal fees spent on tax payments, at around 17.9 billion won.

For 2011, KT&G’s revenue was 954.1 billion won, improving 8.1 percent from the year before, but its margins suffered. Operating profit was 214.9 billion, down 2.1 percent, and net profit 136.7 billon, falling 16.9 percent.

The outlook seems grim for this year, according to pundits. The only good news on the horizon, albeit an unsure one, is a price hike for cigarettes, which has pushed some target prices intact or higher. Korea Investment & Securities stood out by predicting a good year for red ginseng, against KTB Investment & Securities’ generally negative view for the ginseng side of the business.

Last Friday, the last trading session, KT&G’s stock closed 2.22 percent or 1,600 won higher at 73,700 won per share, recovering from a morning drop.