The author is an analyst with NH Investment & Securities. She can be reached at [email protected] – Ed.

Increase weighting on ODM games

Investor sentiment towards the cosmetics industry has worsened with the prolongation of the Covid-19 crisis, a collapse of the economy and consumption in China, and stricter regulations by the Chinese government. But the recent corrections in stock prices seem excessive to us. We recommend that you load OEM / ODM stocks which are expected to show increasing profit trends in the future.

ODM players will benefit from developments in the cosmetics market

Now is the time for domestic OEM and ODM players to take advantage of the growing market in terms of production. In the case of China, where outside activities resumed earlier, pent-up demand grows exponentially and competition among sellers intensifies again amid efforts to dominate the market. Cosmetics vendors are likely to act quickly to gain more market share by selling their current inventory and launching new products, such a development benefiting OEM and ODM players.

Leading ODM plays to strengthen market dominance

In the future, we foresee a constant expansion of the market share of the leading global players in the OEM / ODM cosmetics market. The OEM / ODM cosmetics segment accounts for around 15% of the global cosmetics market, reaching an estimated value of W70tn in 2020. According to a global research company, the OEM / ODM market is expected to grow at a CAGR of 5.7% over 2021-2027. , driven by constantly increasing demand. The global cosmetics market as a whole was hit hard by the Covid-19 pandemic in 2020. However, the OEM / ODM segment remained relatively untouched by the crisis, with the combined market share of the top 10 global players increasing by 3 % pt from 2016 level. We believe the trend to focus on leading companies will intensify further depending on the expansion of the industry, the absence of major new entrants, the preventive expansion of capabilities and technological advancement and quality of superior products.

Maintain Cosmax as the industry’s first choice

We maintain Cosmax as our first choice for the domestic ODM industry. In its main Korean and Chinese markets, the company is expected to show above-average growth going forward. Cosmax is experiencing sustained growth based on close relationships with the main cosmetics players in China and Korea, and its other regional subsidiaries are recording stronger margins. At the same time, the operating losses of its American subsidiary should gradually decrease over time thanks to the signing of a long-term contract with a global customer.


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