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China demand turns Korean cosmetics makers into glamour stocks
[SEOUL] A surge of Chinese tourists into South Korea eager to snap up chic but relatively inexpensive make-up brands has helped shares of the nation's cosmetic firms rally to stratospheric levels.
Shares in Amorepacific Corp, South Korea's biggest cosmetics maker, have more than doubled this year while some smaller firms have done even better with Sansung Life & Science Co jumping seven times in value and Hankook Cosmetics up nearly four times.
The cachet commanded by South Korean cosmetics among Chinese consumers has only gone from strength to strength, helped in part by the growing popularity of Korean pop music, movies and TV shows.
One show, "My Love from the Star", a romance about a human-like alien which aired between December and February, was a smash hit in China and featured product placements of Laneige cosmetics, which are owned by Amorepacific. "Entertainment has certainly helped because when people see something nice on television, they become curious and want to see and experience it in person," said Kim Sung-eun, a director at the Korea Tourism Organisation.
At the same time, a toughening of laws late last year to protect visitors from being fleeced has encouraged Chinese tourists and they now throng duty-free shops and cosmetic stores, often buying in bulk to take goods home for friends.
Cosmetic purchases by Chinese customers at Lotte Duty Free, have jumped 90 per cent in the year to end-October, driven by Korean brands, the country's biggest duty-free chain store operator said.
Tourism data also shows some 4.7 million Chinese have visited South Korea so far this year, up from 4.3 million for all of 2013. By comparison, fewer than 2 million Chinese visited South Korea in 2010.
Sansung said it has seen sales climb 139 per cent to 28.7 billion won (US$26.6 million) for January-June on the strength of its hit facial sheet masks, 80 percent of which are sold to Chinese consumers, both tourists and in China. "From the Chinese perspective, Koreans are always dressed up and their makeup is immaculate - and they want to look like that," Daniel Park, CEO of Sansung's cosmetics arm, called Leaders, told Reuters.
Analysts warn, however, that the rally in Korean cosmetics shares could peak soon, given stretched valuations.
Sansung trades at 192 times earnings for the past year and fellow Kosdaq board member Coreana Cosmetics Co, which has more than doubled in value this year, trades at 390 times. While investors have been less frenzied about Amorepacific, it still trades at a multiple of 57 times.
By contrast, the main Kospi index has an average price-to-earnings ratio of 10.3 and the Kosdaq trades at 15.3. "The prices are so high already and they are bound to meet restraints somewhere down the road. That timing is likely to be in the fourth quarter of this year," said Ahn Ji-young, an analyst at IBK Securities in Seoul.
Even so, some firms are eager to join the gold rush.
YG Entertainment Inc, which manages South Korean rap sensation Psy, is planning a venture into the beauty market while Korea Castiron Pipe Ind Co Ltd has sought to diversify by buying local cosmetics brand Enprani.