Strong Won Dents K-Beauty Stocks Despite Record Exports
South Korean cosmetics exports reached a record $11.1 billion in the first nine months of this year, a 31.1 percent increase, yet shares of major beauty companies like APR and d'Alba Global have seen significant declines.
Record Exports Contrast With Stock Performance
South Korea's cosmetics exports achieved a record $11.1 billion during the first nine months of this year, marking a substantial 31.1 percent increase. This growth, reported by Korea’s Ministry of Food and Drug Safety, highlights robust international demand for K-beauty products. Despite these strong export figures, the stock market has reacted cautiously.
Shares of prominent K-beauty companies, including APR and d'Alba Global, have experienced notable drops, reflecting investor apprehension about future earnings rather than the industry's underlying sales growth.
Currency Strength Impacts Export-Focused Firms
The appreciation of the Korean won against the US dollar is a primary concern for investors, as it diminishes the value of overseas sales when converted back into the local currency.
APR, a key player in the sector with a market capitalization of 11.6 trillion won ($8.8 billion), is particularly affected due to its heavy reliance on international markets; overseas sales accounted for 90.5 percent of its first-half revenue.
Its shares fell to the 270,000 won range in mid-October, approximately 39 percent below their 52-week high of 475,000 won recorded on September 1. IBK Securities attributed this decline to worries over reduced top-line growth stemming from the strong won.
Sector-Wide Pressure and Varied Outcomes
The pressure from currency fluctuations extends beyond APR, impacting other major K-beauty firms such as Amorepacific and LG Household & Health Care, which are anticipated to fall short of consensus operating profit estimates. d’Alba Global's shares also saw a significant reduction, trading around 167,000 won recently, down from a 52-week high of 283,000 won.
In contrast, contract manufacturers like Cosmax and Kolmar Korea appear more resilient. These companies, which largely conduct their billing in Korean won, are projected to report third-quarter operating profit increases of around 60 percent year-on-year, potentially exceeding market expectations.
Outlook for Korean Beauty Brands
Despite the current earnings forecast adjustments, demand for K-beauty products shows no signs of weakening. APR's third-quarter revenue is still expected to more than double, climbing 107.6 percent to 801.4 billion won, according to IBK Securities.
Amorepacific is forecast to see a 12.1 percent revenue rise to 1.14 trillion won, and d’Alba Global's revenue is projected to increase 46.8 percent to 167.6 billion won. For Korean beauty brands with substantial international revenue, implementing robust hedging strategies or exploring localized production to mitigate currency risks will be crucial. This approach could help stabilize earnings despite ongoing foreign exchange volatility.
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