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LG H and H, Amore Pacific clash to be No.1.

Competition is heating up about who will be the No. 1 household healthcare and cosmetics product company here.

The contenders are LG Household and Health Care (LG H and H) and Amore Pacific.

LG H and H is following closely on the heels of Amore as the former posted solid earnings last year.

LG H and H is trading at close to 1.15 million won. Amore is worth about 300,000 won per share. LG H and H has a slightly higher market cap of 18 trillion won, while Amore's is 17.9 trillion won. However, the latter has a bigger presence here and abroad. Its brand has been valued higher than LG H and H, which has been overshadowed by LG Group's tech business.

Earlier this week, LG H and H announced it posted 6.3 trillion won ($5.89 billion) in sales and 930 billion won in operating profit last year, up 2.9 percent and 5.6 percent from 2016, respectively.

In the announcement, LG H and H said it managed to log the highest numbers in its history, despite the unfavorable business environment.

"Overall market growth faced headwinds due to a sharp decline of inbound Chinese traffic and general concerns over the safety of chemical products," the company said in its English statement. "However, all three divisions _ beauty goods, healthcare products and refreshments _ delivered higher growth than the market estimated."

Last year, the domestic cosmetics industry was heavily affected by the diplomatic friction between Korea and China, due to the former's decision to deploy a U.S. Terminal High Altitude Area Defense (THAAD) battery here. Since their sales to Chinese tourists accounts for a significant portion of their entire sales, China's cap on the number of items purchased at duty free shops directly affected their revenue.

LG H and H said, however, its beauty goods achieved strong sales of 3.3 trillion won, up 4.9 percent year-on-year, thanks to its strategy of focusing on luxury cosmetics. It attributed its Whoo and su:m brands _ each posted 1.4 trillion won and 380 billion won in sales last year.

Also, sales in China increased 34 percent from a year earlier, due to strong demand from onshore consumers.

While LG H and H is showing handsome numbers, Amore Pacific is yet to announce its earnings. However, the outlook is far from rosy.

According to Meritz Securities' predictions for Amore, the company will log 6.14 trillion won in sales in 2017, down 8.9 percent from 2016. During the same period, its operating profit will decline by 31.9 percent to 736.9 billion won, the brokerage said.

While LG H and H dodged the THAAD issue through focusing on luxury brands and expanding onshore sales in China, Amore Pacific's mid-range brands of Laneige and IOPE could have been hit hard by China's THAAD retaliation, analysts said.

If the actual performance of Amore Pacific is within the range of the forecast, LG H and H will top the domestic cosmetics industry for the first time since 2014.

The question is their performance for this year.

Analysts say thawing Sino-Korean relations will improve Amore Pacific's earnings this year. Also, its overseas marketing efforts are expected to turn into profit in 2018.

"Amore Pacific's onshore sales in China are recovering, with inbound Chinese traffic to Korea also improving," SK Securities analyst Seo Young-hwa said. "Also, a rebound is expected in not only the Chinese market but also other countries such as the U.S." Amore Pacific is expected to post 6.41 trillion won in sales and 921.3 billion won in operating profit.

KB Securities analyst Park Shin-ay said LG H and H's 2018 guidance of 4 percent growth in sales and 2 percent growth in operating profit was too conservative, because the 2017 record highs are now coming as pressure. She expected LG H and H will log 6.78 trillion won in sales and 1.05 trillion won in operating profit this year.
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Publication:The Korea Times News (Seoul, Korea)
Geographic Code:9CHIN
Date:Jan 24, 2018
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