汇丰银行韩国化妆品行业一切都会过去期待复苏20170825KoreaCosmeticsThistoo

Disclosures&DisclaimerThisreportmustbereadwiththedisclosuresandtheanalystcertificationsintheDisclosureappendix,andwiththeDisclaimer,whichformspartofit.Issuerofreport:TheHongkongandShanghaiBankingCorporationLimited,SeoulSecuritiesBranchViewHSBCGlobalResearchat:–ResearchIsyouraccessagreed?CONTACTustodayEarningsrecoverymaybeslowerthanmarketexpects–notasurprisegivenChina’srestrictionoftourismcontinuesThefocusnowshouldbeonrecoveryandmarketsharegainsinmainlandChinaWecontinuetolikeAmorePacificandLGH&H,bothratedBuyWhat’snew?SinceChina’srestrictionofgrouptourstoKoreafrom15March2017withnosignsofaneaseoftensionsbetweenthetwonations,Chineseinboundtourismcontinuestobeweak.JulyChineseinboundtourismtoKoreawasdownasmuchas69.3%y-o-ywhichisasimilartrendwe’veseensinceApril.Thiswillagaininevitablyweighon3Qearnings,especiallyforcosmeticcompaniesgiventheduty-freechannelisthelargestandmostprofitablechannel.However,whenearningsarereleased,weexpectthesharestorecovergiven:1)3Qearningswillprovethattheworstisbehindusandexpectagradualrecoveryin2H;and2)continuousmarketsharegainsinmainlandChina.GrowingimportanceofChina:WecontinuetobelievethekeytosuccessisbuildingasignificantpresenceinChinaonshoreandbeinglessdependentontourismflows,astourismflowsmaychangedependingongeopoliticaltensions.Weestimatecosmeticcompanies’ChinaonshoresaleshavepickedupfromJulyasmarketingactivitieswerelimitedinthepreviousquarter.Webelievebothcompanies’planstocontinuouslyintroducewell-establishedKoreanbrandsinChina(inparticular,cosmeticsandhaircareproducts)shouldproveasuccessandestimateanother20-30%y-o-yChinasalesgrowthforbothfirmsin2H2017and2018e,whichisanimprovementfromthelowteensgrowthin2Q17.Valuationandrisks:Withthisreport,wenowexpect4mnChineseinboundvisitstoKoreain2017(down50.1%y-o-yvsourpreviousestimateof5.8m,down28.1%y-o-y)and4.5mnin2018asmonthlyfiguressuggestsignsofadelayinarecovery.AssuchweexpectAmorePacificandLGH&Htoseeaduty-freesalesdeclineof30%and20%y-o-y(previously25%and15%y-o-ydecline)for2017eandexpecta15%pickupin2018e(previously10%increase).Ourearningsestimatesareadjustedaccordinglybuttargetpricesareunchanged.WeretainourBuyratingsonbothstocks.Keydownsiderisksinclude:1)weaker-than-anticipatedChineseinbound;2)businessrisksinoverseasmarkets;and3)weakdomesticconsumption.Current______TP_________Rating___Upside/CompanyTickerCurrencypriceOldNewOldNewdownsideMarketcap(USDm)3mADTV(USDm)AmorePacific090430KSKRW295,000400,000400,000BuyBuy+35.6%15,27935LGH&H051900KSKRW984,0001,200,0001,200,000BuyBuy+22.0%13,61622Source:ThomsonReutersDatastream,HSBCestimates;pricedasatclose24August201725August2017KarenChoi*HeadofConsumerandRetailResearch,Asia-PacificTheHongkongandShanghaiBankingCorporationLimited,[e-mail][phone]*Employedbyanon-USaffiliateofHSBCSecurities(USA)Inc,andisnotregistered/qualifiedpursuanttoFINRAregulationsKoreaCosmeticsEQUITIESCONSUMERKoreaThistooshallpass:weexpectarecoveryEQUITIES●CONSUMER25August20172Figure1:EarningspreviewFigure2:ChineseinboundtourismtoKoreacontinuestobeweakSource:KoreaTourismOrganizationFigure3:Salestrendofduty-free,notasbadasChinesetrafficdeclineSource:KoreaDutyFreeAssociation18.4%27.8%52.5%41.6%-2.3%34.8%8.3%8.1%-40.0%-66.6%-64.1%-66.4%-69.3%-50.1%15.0%-80%-60%-40%-20%0%20%40%60%20112012201320142015201617-Jan17-Feb17-Mar17-Apr17-May17-Jun17-Jul2017e2018e(Growth,YoY)24.1%15.3%11.3%26.6%30.5%34.2%28.5%62.4%13.3%1.7%7.4%11.1%8.5%0%10%20%30%40%50%60%70%201120122013201420152016Jan-17Feb-17Mar-17Apr-17May-17Jun-17Jul-17(Growth,YoY)(KRWbn)3Q164Q161Q172Q17_______3Q17e______________2017e_______________2018e________HSBCYoYBbgDiffHSBCYoYBbgDiffHSBCYoYBbgDiffAmorePacificSales1,4011,3161,5691,2051,331-5.0%1,2843.6%5,519-2.2%5,2924.3%6,27113.6%6,1362.2%OP167102317102118-29.6%126-6.4%668-21.3%6522.3%85427.9%861-0.8%NP116-242207990-22.8%96-5.9%519-18.9%4857.0%66327.9%6443.0%LGH&HSales1,5631,4571,6011,5301,547-1.1%1,555-0.5%6,1991.7%6,0113.1%6,6497.3%6,5152.1%OP244178260232233-4.8%2281.9%9275.3%8953.6%1,03711.8%9855.3%NP165571551441650.1%167-0.9%63411.5%6310.5%70911.8%6991.4%Source:Bloomberg,Companydata,HSBCestimates3EQUITIES●CONSUMER25August2017Figure4:DespitenegativeChineseinbound,duty-freesalesstillgrowing(USDmn)ChineseinboundpersonsYoYDutyFreeSalesYoY20146,126,86541.6%7,90326.6%20155,984,170-2.3%8,14330.5%20168,067,72234.8%10,60934.2%Jan-17565,2438.3%96928.5%Feb-17590,7908.1%1,14062.4%Mar-17360,782-40.0%93113.3%Apr-17227,811-66.6%8891.7%May-17253,359-64.1%9367.4%Jun-17254,930-66.4%96611.1%Jul-17281,263-69.3%9828.5%Source:KoreaTourismOrganization,KoreaDutyFreeAssociationFigure5:RelativesharepriceperformanceSource:BloombergEarnings,valuationandrisksAmorePacific,090430KS,Buy,TP400,000(unchanged)WelowerourAmorePacificEPSestimatesfor2017e-18eby3.0%and2.6%,respectively,onthebackoflowertravelretailsalesforecasts.Wenowexpecta30%salesdeclinefor2017e(vs25%declinepreviously)anda15%recovery(vs10%previously)in2018e.WecontinuetouseaSOTPvaluationapproachandseefairvalueata