Cosmetics shares rally amid hopes of eased social distancing

Cosmetics and beauty shares are benefiting from president-elect Yoon Seok-yeol’s pledge to ease social distancing mandates. South Korean cosmetics stocks, undervalued given their recent price plunges, are expected to rally thanks to investors betting on relaxed pandemic-related restrictions.

Skincare giant Cosmax Inc., original design manufacturer (ODM) for global brands such as L'Oréal, and Johnson & Johnson, closed at 82,300 won ($67.24) on March 25, up 1.35%. The stock price rebounded by around 21% from its 52-week low of 68,000 won ($55.56) on Jan. 28, boosted by reopening expectations.

Major ODM Kolmar Korea Co., a supplier to Estee Lauder and other global big brands, closed at 41,950 won on Friday, with a 23.7% jump from a 52-week low of 33,900 won on Jan. 28. ODMs are said to be sensitive to market changes, garnering attention when demand increases. Another makeup ODM C&C International Co. is also expected to benefit.

When expectations on reopening shares increased, cosmetics & beauty stocks fluctuated as demand for cosmetic products remained sluggish due to mask-wearing regulations. President-elect Yoon is considering repealing mask mandates outdoors, which could be favorable for cosmetics shares. Recovery in the travel sector also could benefit cosmetics sales in duty-free shops.

Undervalued stocks of cosmetics firms are already attracting investors. The 12-month forward price-to-earnings ratio of conglomerate Amorepacific Corp. is 31.3 times, much lower than 50 times a year ago. Cosmax’s 12-month P/E ratio is 9.8 times, nearly half the 19.1 times of a year ago. The stocks will enjoy stable growth in Korean and Chinese markets in line with the economic recovery, said Korea Investment & Securities Co. analyst Kim Myung-joo.

Write to Yun-Sang Ko at kys@hankyung.com
Jihyun Kim edited this article.