[Edaily Reporter kyoungeun kim ] Amid a recent sharp decline in cosmetics sector stock prices—particularly among Original Design Manufacturers (ODMs)—analysts have suggested that concerns over cost burdens have been overreacted to. Given that export data indicates demand remains robust, the view is that this stock price correction can be viewed as a buying opportunity.

Park Hyun-jin, a research analyst at Shinhan Investment Securities, maintained an “Overweight” investment rating on the cosmetics sector in a report released on the 6th. From the 25th of last month to the 2nd of this month, stock prices in the cosmetics sector plummeted, particularly among ODM companies. During the same period, COSMECCA KOREA CO.,LTD.(241710)fell 13%, and KOLMAR KOREA(161890)dropped 6%.

Research Analyst Park stated, “The recent stock price correction stems from growing concerns about supply and cost pressures that may arise as rapidly increasing demand is translated into actual production, shipments, and profits,” adding, “Container supply constraints, logistics costs for shipments to the U.S. and Europe, and diminishing exchange rate effects are emerging as key variables affecting major companies’ profitability.”

He viewed concerns about a slowdown in demand as limited. Cosmetics exports in September totaled $1.21 billion, up 29% year-over-year and 12% month-over-month. Exports to the U.S. rose 21% to $247 million, while exports to five European countries surged 142% to $160 million, and exports to the U.K. soared 181% to $52.2 million.

Cost concerns were also examined one by one. First, regarding the supply of packaging materials such as containers, Research Fellow Park explained, “If deliveries are delayed due to supply instability for tube containers, the timing of revenue recognition for some shipments may be pushed back,” but added, “Since delayed shipments can be carried over to the next quarter, it is necessary to distinguish between a temporary shipment delay caused by supply bottlenecks and an actual decline in demand.”

Logistics costs were deemed a burden but not a new negative factor. According to the Korea Customs Service, in August, ocean freight rates for exports were 59.4% higher for shipments to the U.S. West Coast, 75.8% higher for shipments to the U.S. East Coast, and 36.3% higher for shipments to the European Union (EU) compared to the same month last year. Research Fellow Park stated, “While the fact that freight rates to major export markets—the U.S. and Europe—remain high is a burden, it is not an issue that warrants additional concern when compared to the previous quarter.”

He noted that the narrowing of the exchange rate effect has already been reflected in stock prices. The average won-dollar exchange rate for the third quarter was 1,422 won, up 2.7% year-over-year but down 5% quarter-over-quarter, making a weakening of the exchange rate effect for exporters inevitable.

Research Fellow Park emphasized, “Considering export data through September, the cost burden arising from maintaining high growth—rather than a structural slowdown in earnings due to declining demand—is emerging as a key short-term profitability factor.” He added, “The key point to watch during the third-quarter earnings season is whether the gap between revenue growth and operating profit growth will widen; however, stock prices appear to have overreacted to these concerns, making this a potential buying opportunity.”