On Tuesday, HSBC increased its price target on shares of Amorepacific Corp (090430:KS) (OTC: AMRPF) to KRW220,000 from the previous KRW160,000, while keeping a Buy rating on the stock. The adjustment reflects an optimistic outlook on the company's performance, particularly in the COSRX brand and its operations in China.
The firm's analysts have updated the operating profit estimates for Amorepacific for the years 2024 through 2026, citing a 13-15% increase due to better-than-expected results from COSRX and reduced losses in the Chinese market. The analysts expect a 40% increase in duty-free shop (DFS) sales and a 10% growth in domestic e-commerce for the year 2024.
The valuation method used by HSBC for Amorepacific continues to be a sum-of-the-parts (SOTP) approach, with 2024 set as the base year for the analysis. The target enterprise value to earnings before interest, taxes, depreciation, and amortization (EV/EBITDA) multiple for the domestic cosmetics business remains unchanged at 12 times.
This multiple is consistent with the lower average level from 2013 to 2016, a period when Amorepacific's earnings began to rise, bolstered by an influx of Chinese tourists.
For the international segment of Amorepacific's business, HSBC has increased the price-to-earnings (PE) target multiple from 20 to 30 times, in light of a more promising growth forecast for the COSRX brand. This valuation is considered reasonable given that Amorepacific's trading multiple was at 43 times PE during the years 2012 to 2016, which coincided with a 42% compound annual growth rate (CAGR) in overseas sales.
The upward revision in the price target to KRW220,000 from KRW160,000 is based on these improved performance estimates and valuation multiples. HSBC's continued Buy rating indicates their positive stance on Amorepacific's stock prospects.
InvestingPro Insights
Amorepacific Corp's (090430:KS) (OTC: AMRPF) recent performance has caught the attention of analysts and investors alike. In light of HSBC's upgraded price target and the company's promising outlook, let's delve into some key metrics and InvestingPro Tips that could provide further insight into this beauty giant's financial health and market position.
InvestingPro data indicates that Amorepacific holds more cash than debt on its balance sheet, a sign of financial stability that could support the company's growth initiatives and weather economic uncertainties. Additionally, the company's gross profit margins have been impressive, which suggests that Amorepacific has been effective in managing its production costs and pricing strategies, thereby increasing profitability.
However, the Relative Strength Index (RSI) suggests that the stock is currently in overbought territory. This technical indicator might imply that the stock could see a pullback in the short term as traders who perceive the stock to be overvalued may start taking profits.
For those interested in a deeper analysis, Amorepacific is featured on InvestingPro, where users can find an array of additional InvestingPro Tips. As of now, there are 16 more tips available for Amorepacific, ranging from valuation multiples to profitability and market performance indicators. These tips can provide valuable context for both short-term traders and long-term investors.
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