South Korea's beauty industry is booming, yet its top stocks by market value remain undervalued relative to earnings, according to a new analysis. Korean beauty companies are performing strongly in major global markets including North America and Europe.
Korea Investment & Securities set a target price of 520,000 won for APR in a report released on the 26th, 17.3% above the stock's current price of 443,000 won as of 9:06 a.m. "For the cosmetics sector, this is the time to focus on companies with relatively low expectations for third-quarter results and strong valuation appeal," the report said. "We forecast APR's European sales this year will reach 473.4 billion won ($341 million), up 321% from a year earlier."
APR posted second-quarter revenue of 767.5 billion won and operating profit of 190.6 billion won on a consolidated basis. Revenue rose 134.2% and operating profit 134.5% from the second quarter of last year, with an operating margin of 24.8%. First-half revenue totaled 1.36 trillion won ($979 million), approaching last year's full-year revenue of 1.53 trillion won. In effect, the company matched close to a full year's results in just six months.
The earnings growth was most notable in North America, where APR generated 49% of its second-quarter revenue. In the second quarter of last year, North America accounted for 32% of sales, trailing Asia's 33%, but growth accelerated this year. As the company rapidly expands its footprint in North America, the world's largest market, the outlook for future earnings has brightened. Recent tangible gains in the European market have also helped it diversify its revenue sources.
Korea Investment & Securities also called Silicon2 undervalued relative to earnings, setting a target price of 60,000 won, 17.9% above its current price of 50,900 won. Silicon2 topped 400 billion won in quarterly revenue for the first time in the second quarter of this year. It continues to expand as it handles distribution amid rising global exports of Korean beauty products. "Silicon2's valuation remains attractive despite the recent rise in its stock price," said Kim Myung-joo, an analyst at Korea Investment & Securities. "An inflow of funds into the KOSDAQ in the second half would be very positive for Silicon2."
