K-beauty contract manufacturers see record Q2 profits; rally likely to continue

South Korea’s major original design manufacturers (ODMs) for cosmetics, led by Cosmax Inc. and Kolmar Korea Co., are estimated to have posted their highest-ever quarterly profits in the second quarter.

A surge in exports by small and mid-sized labels fueled their earnings growth, with indie brands expanding into markets that were once out of reach.

Reflecting robust exports, Kolmar Korea’s share price has skyrocketed 88% year to date, while shares in Cosmax have risen 81%. The two companies are the world’s two largest cosmetics ODMs. The share price of their smaller peer Cosmecca Korea Co. has gained 21%.

Analysts expect their rally to continue in the second half, supported by their capacity expansion this year as expectations grow that China will ease restrictions on imports from Korea.

Cosmax’s operating profit is estimated at 63.4 billion won ($46 million) on sales of 647.1 billion won, according to data provider FnGuide on Tuesday.

It would mark the first time for the company’s quarterly results to surpass the milestones of 60 billion won in operating profit and 600 billion won in revenue, respectively, said Park Eun-jung, an analyst at Hana Securities.

“In Indonesia, Cosmax has become the undisputed No. 1 ODM company in terms of market share,” said Park Jong-dae, an analyst at Mertiz Securities. “It aims to more than quadruple its production capacity (in total) by 2027.”

Kolmar Korea is likely to report 82.2 billion won in second-quarter operating profit against sales of 738.7 billion won, according to the market consensus provided by FnGuide.

The completion of its second plant in the US will strengthen its position in the ODM market,” Park added.

Cosmecca Korea is also forecast to have posted its largest-ever quarterly results.

South Korea’s cosmetics exports have posted double-digit on-year growth for most months since the start of this year, according to KED Global, an alternative data platform of The Korea Economic Daily.

Notably, exports to Europe surpassed the $100 million mark in March. It marked the first time that exports of Korean cosmetics to the region exceeded the milestone for a single month.

In the Middle East, the United Arab Emirates and Saudi Arabia have led the export growth, according to Meritz’s Park.

This year, Cosmax and Kolmar Korea have expanded their capacity by 30% and 50%, respectively.

This week, analysts raised their target prices for the top three cosmetics ODMs by double digits.

“Sunscreen products are in peak season, and ODMs are seeing continued orders from Europe,” said Lee Hae-na, an analyst at Eugene Investment & Securities Co.

On Monday, she lifted her target price for Cosmax to 330,000 won from 270,000 won. On Wednesday, its share price fell 2.12% to close at 253,500 won, slightly underperforming the flat Kospi market.

Hana Securities raised its target price for Kolmar Korea to 130,000 won from 110,000 won on Monday, higher than its Wednesday closing price of 107,000 won, down 1.56% from the day before.

The brokerage company's target price for Cosmecca Korea was also revised upward to 78,000 won from 65,000 won. On Wednesday, the stock finished down 2.17% at 67,700 won.

Write to Ji-Yoon Yang at yang@hankyung.com
 

Yeonhee Kim edited this article.