Amorepacific Targets 20% U.S. Sales Growth With SAT Strategy

Amorepacific has unveiled a blueprint to shift the center of gravity for next year’s earnings toward the United States, Japan, and Europe, the Middle East and Africa (EMEA). According to Yonhap News, Shinhan Securities maintained its 195,000-won target price and “Buy” rating on the 14th, based on the company’s analyst day presentation the previous day. However, the figures released this time are targets, not earnings results. Until the targets of 10% revenue growth and an 11–12% operating profit margin are confirmed in quarterly earnings, investors should distinguish between buying proven performance and buying a plan.

Three-line briefing

• Amorepacific set targets of 10% revenue growth and an 11–12% operating profit margin next year.
• In the United States, it plans to shift from Sephora-centered distribution to a “SAT” strategy combining social media, Amazon and TikTok, targeting 20% revenue growth and a double-digit operating profit margin.
• Shinhan Securities maintained its 195,000-won target price and Buy rating.

What is changing

Shinhan Securities researchers Park Hyun-jin and Kwon Chae-yoon described the strategy as follows: “If this year was about reorganizing the brands and organization, next year marks the beginning of global growth in earnest.” The key is a shift in the balance of distribution channels. In the United States, the company plans to move away from a structure dependent on shelf space at Sephora and instead connect the spread of social media content directly to purchases on Amazon and TikTok. If this structure works in practice, content would convert into purchases faster, but the company has not disclosed any figure for that conversion rate.

By region, the company plans to expand offline channels in Japan and major retail channels in EMEA. China is taking a different path. The company said it would focus on improving profitability rather than top-line growth, which suggests redirecting resources toward reducing discounting and inventory burdens instead of expanding revenue. By category, it reportedly plans to increase the share of high-performance skincare and haircare.

Putting the numbers in context

The figures presented by Shinhan Securities are 10% companywide revenue growth, an 11–12% operating profit margin, 20% U.S. revenue growth and a double-digit U.S. operating profit margin. The notable point is that the U.S. target is nearly twice as high as the companywide target. This suggests that the company has narrowed its main earnings-improvement battleground to the United States. However, all of these figures are targets presented by the company and the brokerage, and the execution results will only be confirmed in the next quarterly earnings release.

Beneficiary and affected stocks (tickers)

• Amorepacific (090430): The direct stock (ticker) involved in the strategic reorganization. If U.S. revenue grows 20% as targeted and the business secures a double-digit operating profit margin, the pace of companywide earnings improvement could accelerate. If the shift to the SAT strategy is delayed, however, the target for high U.S. growth could be revised first.

Risk check

• Shinhan Securities’ researchers also noted that “continued monitoring is needed to determine whether the change in channel strategy leads to actual revenue and earnings growth.” In other words, the brokerage itself acknowledged execution risk.
• Because China will focus on improving profitability rather than top-line growth, the plan does not rule out the possibility that China revenue will remain stagnant for the time being.
• If the U.S. operating profit margin falls below the double-digit level presented, the profitability rationale for shifting to the SAT strategy will weaken.

Bottom line

The basis for Shinhan Securities maintaining its Buy rating and target price is the direction of the company’s strategy, not earnings proven in the numbers yet. If U.S. revenue growth falls below 20% in the next quarterly results, the logic behind this reorganization will face renewed scrutiny.

This article is automatically summarized and analyzed based on the original news report. View original (Yonhap News Securities)