Cosmax Posts First-Ever U.S. Profit — Why Next Year Looks Even Brighter

[Korea Financial Times, Yang Hyunwoo] Cosmax posted its best-ever quarterly results in the second quarter of this year. Most notably, its U.S. subsidiary — the focus of years of investment — turned profitable for the first time since the company's founding, successfully diversifying its profit base. On top of that, the results of the "Three Global Production Hub Project," backed by a total of KRW 260 billion, are set to materialize in the second half of the year, further strengthening the company's manufacturing competitiveness.

Growth Spans From Korea to Overseas Markets in Q2

According to industry sources on the 12th, Cosmax's consolidated revenue for the second quarter of this year rose 27% year-on-year to KRW 794.9 billion, while operating profit grew 21% to KRW 73.7 billion. Both figures mark all-time quarterly highs. Including these results, first-half revenue came to KRW 1.4769 trillion and operating profit to KRW 126.8 billion, up 22% and 13% year-on-year, respectively.

The most notable change in this quarter's results was the turnaround at the U.S. subsidiary. Cosmax's U.S. unit posted revenue of KRW 53.8 billion in the second quarter, up 79% from the same period last year, and recorded its first-ever quarterly profit since the company was founded. The turnaround came as ongoing management efficiency efforts combined with a strategy to secure new brand clients, driving both revenue growth and improved profitability simultaneously.
Korea and other key overseas subsidiaries, including China, also continued to grow. Domestic revenue rose 23% year-on-year to KRW 518.4 billion, surpassing the KRW 500 billion mark in a single quarter for the first time. Operating profit rose 13% to KRW 56.4 billion.

Revenue at the Chinese subsidiary came to KRW 197.4 billion, up 33%. At the Shanghai unit, strong growth among local color cosmetics clients continued, with base makeup products such as cushions and foundations, along with blush and lip products, driving revenue growth.

The Indonesian subsidiary also grew, helped by a recovery in performance among existing clients and the addition of new customers. Second-quarter revenue rose 38% year-on-year to KRW 28.9 billion, driven by a recovery among existing channel clients such as convenience stores and supermarkets, as well as an increase in new clients in the small retail channel. In particular, a recovery in sales among top clients centered on high-margin categories such as creams and sun care also helped defend profitability. Export sales to neighboring countries, including Malaysia, Singapore and India, are also growing.

Revenue at the Thai subsidiary rose 8% year-on-year to KRW 24.9 billion. Reorders of existing hit products from major clients increased, and production volumes at large clients are also expanding in earnest. In its OBM (Original Brand Manufacturer) business, the company expanded its revenue base by supplying various new brands to clients.

Relay Launch of New Asian Plants, Backed by KRW 260 Billion Investment, Nears

The outlook for future growth is also bright. Starting in the second half of this year, the KRW 260 billion investment in three new global production hubs will begin to bear fruit. The Three Global Production Hub Project is a core future strategy under which Cosmax will build large-scale new plants by 2027 in three key Asian regions — Shanghai, China; Thailand; and Indonesia. The aim is to secure an "insurmountable gap" in manufacturing competitiveness by establishing a high-quality, high-efficiency smart production system to proactively meet demand for K-beauty products.
The first to come online will be the new plant in Bang Phli, Thailand. Built with an investment of about KRW 56 billion, the facility is four times larger than the existing plant and is scheduled to begin operations in the fourth quarter of this year. With annual production capacity of more than 230 million cosmetics units, it will serve as a key forward base for tapping into the growing Southeast Asian cosmetics market.

In Shanghai, China, construction of a new headquarters building and smart production facility is nearing completion in the second half of this year. Built with an investment of about KRW 130 billion on a total floor area of 73,000 square meters in the Xinzhuang Industrial Zone, the facility will serve as a "one-stop beauty hub" integrating cosmetics research, production and marketing. Once completed, it will raise Cosmax's annual production capacity in China to about 1.6 billion units.

There is also a new plant under construction in Indonesia, targeted to begin operations in the second quarter of next year. Built with an investment of KRW 73 billion, the plant will have annual capacity of 600 million units. Targeting Southeast Asia's largest Muslim consumer market, it will focus on meeting demand for diversified certified products, including halal and vegan cosmetics, and expand the company's global client portfolio.

If all three new production hub projects are completed successfully, Cosmax's global annual production capacity — currently about 3.3 billion units — will surpass 4 billion units. That volume would be enough for one in every two people in the world to use a Cosmax-made cosmetic product.

A Cosmax official said, "In the second half of the year as well, we will further solidify our position as the world's No. 1 cosmetics ODM company, based on continued strength in skincare, growing global demand for K-beauty, and the successful onboarding of new clients."

Yang Hyunwoo (yhw@fntimes.com)