K-Beauty Stocks Near End of Correction? ... 'This Company' a Bargain-Buying Opportunity [Weekend Money]

Stocks corrected after a sharp valuation run-up
Robust demand remains... it was only profit-taking
APR and d'Alba Global: "Buying opportunities at the bottom"

Analysts say the correction in cosmetics stocks, which surged sharply this summer before turning lower, is nearing its end. Brokerage analysts expect South Korea's cosmetics industry to post strong results in the second half, underpinned by robust global demand.

Park Jongdae, an analyst at Hana Securities, said, "Global demand for K-beauty remains very strong, and the effects of expanding channels, regions and categories are greater than expected. The impact of entering major retailers could double sales during the global holiday season in the fourth quarter."

Foreign tourists browse cosmetics outside a cosmetics store in Myeongdong, Seoul, on the 13th. Photo by Heo Younghan younghan@

Last August, cosmetics stocks, led by original development manufacturer (ODM) companies, rose by more than 30%. Analysts attributed the gains to strong earnings momentum, rising valuations and a rotation in buying driven by supply-and-demand dynamics.

However, share prices corrected over the course of September. Analyst Park said, "The industry's valuation had risen to around 20 times its 12-month forward price-to-earnings ratio. Given strong earnings momentum, medium- to long-term growth potential and barriers to entry, a valuation of 20 times is certainly justifiable. But valuations cannot double in just one or two months." He added, "Valuations had already surpassed their 2024-2025 average, and the stronger won was also a headwind."

He forecast that a rebound would begin, citing strong global demand for South Korean cosmetics and rising exports. "It is too early to talk about a peak in share prices. September exports grew 30% year over year, despite a high base in the previous year, boosting expectations," Park said. "The stronger won will not change the industry's direction. The only factor at play was the desire to take profits after a short-term surge."

He also cited the decline in valuations from their previous highs as another factor that could drive further gains. The cosmetics industry's valuation, based on 12-month forward PER, fell to 14.6 times, while that of major ODM companies dropped to the low teens. "The earnings outlook for ODM companies is highly visible," Park said. "Third-quarter results could be better than expected, particularly when the impact of price increases is taken into account. And given that production schedules are fully booked through year-end, fourth-quarter results are also likely to be revised upward from current estimates."

In particular, he described APR and d'Alba Global, whose valuations have fallen sharply, as "buying opportunities at the bottom." Shares in both companies have fallen to around 30% of their peak levels amid a stronger won and valuation concerns. "It is true that the fact that a single mid-priced-to-low-priced brand has reached annual sales of 3 trillion won could weigh on perceptions of its future growth potential and visibility," Park said. "However, neither company is showing any signs of slowing growth yet. Being a single-brand company is clearly a limitation and a source of concern, but worrying about a problem that has not yet emerged is premature."

"Even allowing for a gradual decline in valuations, it is excessive for the 12-month forward PER to fall from 30 times to 14 times in just a few months," Park said. "A valuation discount for d'Alba Global compared with APR is inevitable, but a decline to 12 times PER is excessive. The unfamiliarity of pursuing a path no company anywhere in the world has taken may be a source of anxiety."

This content was produced with the assistance of AI translation services.