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雷达卡
Korea Personal Care Sector
UPGRADE RATING
Resilient demand and quality management
■
Amid a weak 2009 environment, we believe that leading Korean
personal care companies are likely to show resilient demand and
profitability. In previous crises, the demand for cosmetics and
household goods was quite resilient. The leaders maintained, or even
increased, their market shares, while the operational environment
toughened for second and third-tier players.
■
Key events for 2009: 1) Parallel importing. We believe that parallel
imports, now allowed by the government, may increase competition.
However, leaders focusing on differentiating brand concepts, product
offerings and services are more likely to thrive. Furthermore,
companies that participate in the new parallel importing system may
offset the negative impact of cannibalisation by leveraging on returns
from parallel imports; 2) the polarisation trend, or trend by consumers
to trade up, may slow, but is not likely to cease. We believe the longterm
trend of trading up will be sustained, as structural changes in the
demographics of higher numbers of working women and social
pressure are likely to stay healthy or attractive. The slowdown in this
trend in 2009 would allow better opportunities for companies that
invest in upgrading their brands; and 3) strategic investment
opportunities may rise. Valuation merits have risen across the board,
and a few leading personal care companies are cash generating.
■
LG HH is our top pick in the sector because: 1) it still has room to
expand its cosmetics market share; 2) it has the potential for a betterthan-
expected turnaround in Coca Cola Bottling Korea; 3) it has
potential to increase new business initiatives, with a track record of
strong execution and validating new business opportunities plus
strong discipline in valuations and turnarounds; and 4) LG HH also has
a compelling valuation of 15.0x FY09E P/E given its three-year (2008-
11) EPS CAGR of 22%, an ROE of 30% and ROIC of 20%.
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