Korean cosmetics makers see record Q2 profits led by exports

South Korean cosmetics original development and design manufacturers (ODMs) such as Cosmax Inc., Kolmar Korea Co. and Cosmecca Korea Co. are estimated to have posted their highest quarterly profit in the second quarter of this year.

The rise of K-pop and Korean drama series boosted the appetite of budget-conscious consumers for K-beauty products amid persistent inflation, driving their sales sharply higher in foreign e-commerce markets such as Amazon.

Revenue at Korean ODMs from cosmetic products was estimated to have climbed 10%-40% in the April-June quarter from the year prior, according to market consensus.

Cosmax, Korea's No. 1 cosmetics ODM, will likely report a 26.3% jump on-year in second-quarter operating profit to 58.1 billion won ($42 million).

Kolmar Korea saw a 15.3% rise to 64.2 billion won in operating profit with a 10.8% rise to 664.3 billion won in sales over the same period, according to analysts.

INDIE BRANDS

The second quarter is traditionally the peak season for cosmetics makers thanks to demand for suncare products. The ascent of Korean indie cosmetics brands was attributed to the rapid sales growth of domestic ODMs.

Small- and mid-sized indie K-beauty brands such as Cosrxinc, Skin1004, Beauty of Joseon and Round Lab performed well in the US and other countries backed by trendy, innovative products and creative social media marketing.

“The rise of domestic indie brands and their rapid export growth were the driving forces behind our earnings improvement,” said a Cosmax official.

MARKET DIVERSIFICATION

Their export market diversification beyond China was credited to their strong results in the second quarter as well.

This year, K-beauty products were shipped to more than 170 countries. Their exports leapt to $4.04 billion in the first five months of this year from $3.34 billion in the same period last year, according to the Korea Customs Service.

Analysts remain bullish on Korean cosmetics makers.

“Amazon Prime Day in the third quarter and US Black Friday in the fourth quarter will fuel the growth in orders from cosmetics ODM customers,” said Cho SoJung, an analyst at Kiwoom Securities.

Prime Day is Amazon’s annual event offering exclusive discounts on top brands. This year’s event was held on July 16-17. Black Friday, the day after US Thanksgiving Day, traditionally marks the start of a special deals and discount season for shoppers.

“We will increase the operation rate of our production facilities in North America, including the second one under construction, to their maximum,” said a Kolmar Korea official. “We will aggressively expand our sales network not only in North America but also in Central and South America and Europe.”

Cosmax is considering building a new plant in Latin America to meet burgeoning demand for its beauty products, Choi Kyoung, vice chairman of Cosmax, said early this month.

Riding the K-beauty boom, cosmetics raw material suppliers are also jostling into the ODM market.

On Monday, Sunjin Beauty Science Co., a local cosmetics raw materials supplier, broke ground on a plant to produce suncare products for ODM customers with an investment of 18 billion won, according to its regulatory filing and announcement.

In the second quarter, the National Pension Service raised its bets on Korean beauty and food companies on expectations that the ongoing Hallyu, or Korean Wave, will continue to power their export growth.

APR Co., a skincare products maker that debuted on the Kospi market in February, topped the list of stocks to which the world's No. 3 pension scheme raised its exposure in the second quarter.

Write to Sul-Li Jun at sljun@hankyung.com
 

Yeonhee Kim edited this article