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Awaiting COSRX consolidation

4Q23 review: Solid performance outside of China

For 4Q23, Amorepacific reported below-consensus results, with revenue of W926bn (-15% YoY) and operating profit of W20.7bn (-64% YoY). The China business posted weak revenue and a larger-than-feared operating loss (W50bn). We believe China revenue fell more sharply than expected due to a more than 50% decline in Sulwhasoo and Ryo exports (sell-in). Outside China, overseas revenue grew roughly 30% YoY. For domestic operations, OP margin improved to 9%.

Earnings recovery delayed; expectations growing for COSRX

We believe it will take longer than expected for the China business to break even, as channel inventory adjustments for Ryo should continue in 1Q24, and offline channel streamlining efforts for Laneige are planned though 1H24. Amid a delayed earnings recovery, the stock’s momentum should remain muted in the near term. That said, we think attention will be more focused on COSRX going forward, as the company has been performing more strongly than expected; for 2024, COSRX is targeting revenue of W624bn (+30% YoY). With the COSRX consolidation (which is still one quarter away) likely to provide momentum, we would view any pullback in shares as a good buying opportunity.