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On Thursday, UBS analysts downgraded Amorepacific Corp (KS:090430:KS) (OTC: AMRPF) stock from ’Buy’ to ’Neutral’ and reduced their price target from KRW 160,000 to KRW 120,000. The downgrade comes as the analysts believe that the company’s positive catalysts, such as its market shift away from China and channel mix improvements, have already been reflected in the stock’s performance in 2024.
The UBS analysts noted that while Amorepacific’s restructuring efforts in China and expansion into non-China markets are progressing, the potential upside has been incorporated into the previous year’s growth. They expressed concern about the downside to the consensus expectations for 2025, following the company’s guidance that its Cosrx brand is anticipated to see slower growth than in prior years.
According to UBS, Amorepacific’s management has set a growth target for Cosrx, which constitutes 43% of the company’s operating profit in the 2025 estimate, at a high single-digit year-over-year with a mid-20s operating profit margin. This is a marked decrease from the double-digit growth and over 30% operating profit margin seen in previous years. The analysts attributed this slowdown to a less rapid transition in the main product portfolio from snail mucin to the highly concentrated RX serum line and a high comparative base from past performance.
While there is optimism for stronger sales in the US and EU markets, driven by the robust growth of the Laneige brand, which accounts for more than 80% of US revenue, and the introduction of two new brands including Aestura H125, UBS suggests that this may be counterbalanced by the slower-than-expected sales of Cosrx.
UBS has indicated that they are open to revisiting their rating for Amorepacific if certain conditions are met. These include sales of new brands in the US exceeding expectations, faster penetration of the EU and non-China Asian markets by Laneige and Cosrx, and a downward adjustment of the 2025 consensus earnings to align more closely with UBS’s own estimates.
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