![]() ![]() Improving operating margins of the HDB (Home Care & Daily Beauty) & beverages business units Unlike Amorepacific which was much more negatively impacted by the big drop from the cosmetics sales in the duty free shops, LG H&H was less impacted by this due to its greater reliance on online cosmetics sales. The company's luxury cosmetics brands such as Whoo are selling very well in China and the company's cosmetics sales to China grew by 21% YoY in 2020. LG H&H has done a great job in aggressively expanding its digital channels and online marketing of its cosmetics products in the past several years. For more than a decade, Amorepacific had the number one market share in the Korean cosmetics sector in Korea until 2020 when LG H&H bypassed Amorepacific to claim the number one spot. LG H&H and Amorepacific combined had more than 60% market share in the Korean cosmetics market at the end of 2019. Nonetheless, there is growing evidence that the worst of COVID-19 could be in 2020 and that with hopeful developments on effective vaccines against COVID-19, there could be improving data on global travel (including more travelers from China and Japan visiting Korea) which would benefit LG H&H. Until millions of people have access to safe, effective vaccines against COVID-19, it may take a long time before global travel activities come back to normal. As COVID-19 becomes better controlled this year, it is likely that numerous governments may be more lenient in requiring their people to wear masks when they go outside of their homes. We believe that COVID-19 could become better controlled in the next two years in many key countries around the world. Overall, we believe that these vaccine developments are likely to result in COVID-19 becoming less of overwhelming problem in Asia and globally as well. However, there have been increasing positive signs such as the development of potentially effective vaccines against this virus. All of these measures resulted in lower demand for cosmetics. ![]() Last year was a worst ever year for the Asian and the global cosmetics industry, as millions of people around the world who were forced to cover their faces with masks, increase social distancing, and reduce international travel. LG H&H's core business is in the cosmetics business and millions of Asian consumers have a strong loyalty to the company's numerous cosmetic brands including Whoo, O Hui, and S:UM. These strong results of LG H&H's cosmetics business are a testament of the strong consumers loyalty of the company's cosmetics brands combined with reduced reliance on the duty free shops and other retail shops for its sales of cosmetics. This is an excellent performance, especially given that many of its competitors in Korea including Amorepacific Group ( OTC:AMPCF ) (090430 KS) (biggest competitor in Korea) suffered much worse results last year with Amore's sales and operating profit declining by 21% YoY and 67% YoY in 2020, respectively. The cosmetics units' operating margin declined slightly from 18.9% in 2019 to 18.5% in 2020. In this scenario, we believe thatĭespite a very difficult operating environment, LG Household & Healthcare's cosmetics unit sales declined by only 6.1% YoY to reach 4,458 billion won in 2020. ![]() Although it is unclear when COVID-19 will end, there are many signs that suggest that COVID-19 could be better controlled in 2021, which could reduce the need to wear masks as well as the need for social distancing measures and these actions could result in a big pent-up demand increase of cosmetics. In our view, COVID-19 is a "once in a century" type of prolonged event. Key Catalysts Strong performance of the cosmetics business despite COVID-19 pandemic We also believe LG H&H is one of the most attractive GARP related stocks in Asia and we believe that LG H&H has a 30%+ upside from current levels over a one year period using relative historical valuation method. The company's cosmetics business is also likely to benefit from an accelerated improvement of its top-line sales and profit margins along with the gradual improvement in COVID-19 pandemic as millions of people (especially female) reduce wearing masks which have shown to have an inverse relationship with higher cosmetics usage. There have been increasing signs that its extensive moat for these products has been getting wider as evidenced by the company's increasing market share in key luxury cosmetic brands such as Whoo. LG Household & Health Care ( OTCPK:LGHHF) ("LG H&H") (051900 KS) has some of most loyal consumer base in Korea for its luxury cosmetics and household products. Click here to find out more » Investment Thesis ![]() Active contributors also get free access to SA Premium. It's easy to become a Seeking Alpha contributor and earn money for your best investment ideas. Editor's note: Seeking Alpha is proud to welcome Douglas Kim as a new contributor. ![]()
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |