Korea’s Cosmax to shut Ohio plant to cut losses; shares up

Cosmax Inc., a major South Korean original design manufacturer (ODM) for L'Oréal and other global cosmetics giants, plans to shut its loss-making US plant in Ohio, raising hopes for profitability improvement and creating a surge in the stock price.

Cosmax is known to have decided to close the factory in Solon in the first quarter of the next year, according to industry sources on Thursday. The company is expected to transfer some of the equipment at the plant to NuWorld Beauty, its unit in New Jersey.

Shares of Cosmax closed up 9.39% at 68,700 won ($52.2) on Seoul’s main exchange, far outperforming the wider Kospi's 0.27% fall.

The company founded Cosmax USA in 2013 and acquired the Ohio plant from L'Oréal the following year at 15 billion won. But Cosmax USA has been in the red since its establishment as the factory’s capacity exceeded its sales, ramping up the US unit’s fixed costs. Cosmax USA reported a net loss of 27.3 billion won in 2021 based on sales of 63.3 billion won.

“The sustained impaired capital was one of the key factors that hurt Cosmax’s corporate value,” said Park Eun-jung, an analyst at Yuanta Securities Korea.

The closure of the Ohio factory is expected to improve Cosmax’s profitability, analysts said.

Meritz Securities forecast the shutdown to increase Cosmax’s operating profit by 25 billion won next year on a consolidated basis and another 8 billion won in the first quarter of 2024.

“Its share price is predicted to rise further on the simultaneous withdrawal of the Ohio unit and a recovery in its Chinese business,” said Ha Nuri, the brokerage house’s analyst.

Write to Sung-Mi Shim at smshim@hankyung.com
Jongwoo Cheon edited this article.