Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Equity Capital Markets

<ul class=""><li>CTK Cosmetics is the biggest IPO in the Korean cosmetics sector in 2017. Bookbuilding starts on November 20th and it should be in strong demand due to the company's excellent fundamentals and improved valuations of its cosmetics peers from the improved outlook of Chinese group tours potentially starting again by end of the year.</li><li>We recommend investors to take the CTK Cosmetics deal. </li><li>We would argue that CTK Cosmetics should trade at a PREMIUM to its comps due to its a) higher ROE, b) higher profit margins, and c) ability to penetrate well known global cosmetics companies as customers including <a href="https://www.smartkarma.com/entities/8713" target="_blank" data-smartkarma-citation="entities:8713:1">Estee Lauder Companies Cl A (EL US)</a>, <a href="https://www.smartkarma.com/entities/21415" target="_blank" data-smartkarma-citation="entities:21415:1">Christian Dior SE (CDI FP)</a>, Chanel, and L'Oreal. Exports represented 99.9% of the company's sales in 1H17. We believe that a 20% premium valuation to its peers is appropriate for CTK Cosmetics, which would imply 2018E P/E of 27.6x. </li><li>We have estimated the base case net profit of 25.3 billion won for CTK Cosmetics in 2018. Applying a 27.6x P/E multiple on this would suggest an implied market cap valuation of 697.2 billion won or 68,859 won per share, representing a 25% upside to the high end of the IPO range of 55,000 won per share.</li></ul>

CTK Cosmetics is the biggest IPO in the Korean cosmetics sector in 2017. Bookbuilding starts on November 20th and it should be in strong demand due to the company's excellent fundamentals and improved valuations of its cosmetics peers from the improved outlook of Chinese group tours potentially starting again by end of the year.We recommend investors to take the CTK Cosmetics deal. We would argue that CTK Cosmetics should trade at a PREMIUM to its comps due to its a) higher ROE, b) higher profit margins, and c) ability to penetrate well known global cosmetics companies as customers including Estee Lauder Companies Cl A (EL US), Christian Dior SE (CDI FP), Chanel, and L'Oreal. Exports represented 99.9% of the company's sales in 1H17. We believe that a 20% premium valuation to its peers is appropriate for CTK Cosmetics, which would imply 2018E P/E of 27.6x. We have estimated the base case net profit of 25.3 billion won for CTK Cosmetics in 2018. Applying a 27.6x P/E multiple on this would suggest an implied market cap valuation of 697.2 billion won or 68,859 won per share, representing a 25% upside to the high end of the IPO range of 55,000 won per share.

CTK Cosmetics (Part 2) Valuation Analysis - Biggest Korean Cosmetics IPO in 2017

Thematic (Sector/Industry)

It was announced on October 31st that the Chinese and South Korean governments plan to restore relations after more than a year of a bitter dispute regarding THAAD deployment in South Korea. This note highlights how this will impact various stocks in the Korean stock market as well as attempt to address why these two countries are trying to mend relations. This announcement did not mention any removal of the THAAD system from South Korea. What are the major implications?1) This is a positive…

It was announced on October 31st that the Chinese and South Korean governments plan to restore relations after more than a year of a bitter dispute regarding THAAD deployment in South Korea. This note highlights how this will impact various stocks in the Korean stock market as well as attempt to address why these two countries are trying to mend relations. This announcement did not mention any removal of the THAAD system from South Korea. What are the major implications?1) This is a positive…

Impact of China and South Korea Restoring Relations

CTK Cosmetics is applying for an IPO in the Korean stock market. The lead banker for this deal is Mirae Asset Daewoo Securities. CTK Cosmetics IPO is expected to be the biggest IPO in the Korean cosmetics sector in 2017. It is expected that CTK Cosmetics may raise more than 100 billion won in the IPO.<h2>Three Major Reasons Why CTK Cosmetics IPO Will be in Strong Demand:</h2><ol><li>The company has one of the strongest growth in sales and profits with excellent returns on invested capital among Korean cosmetics companies. The company's revenue surged 119.3% YoY to 133.9 billion won and its operating profit jumped 113.9% YoY to 26.7 billion won in 2016. CTK Cosmetics enjoyed one of the highest growth rates for sales and operating profit among the Korean cosmetics companies in 2016. </li><li>It has a very low reliance on the Chinese market for the exports of its cosmetics products, unlike most other Korean cosmetics companies. In the midst of the THAAD conflict, this is a positive.</li><li>CTK Cosmetics has a superb, globally renowned customer base. CTK is a cosmetics ODM (original design manufacturing) company mainly for the US and European based global cosmetics powerhouses including <a href="https://www.smartkarma.com/entities/8713" target="_blank" data-smartkarma-citation="entities:8713:1">Estee Lauder Companies Cl A (EL US)</a>, <a href="https://www.smartkarma.com/entities/21415" target="_blank" data-smartkarma-citation="entities:21415:1">Christian Dior SE (CDI FP)</a>, Chanel, and L'Oreal. In addition to cosmetics ODM business, CTK Cosmetics is also involved in the cosmetics packaging business. </li></ol>

CTK Cosmetics is applying for an IPO in the Korean stock market. The lead banker for this deal is Mirae Asset Daewoo Securities. CTK Cosmetics IPO is expected to be the biggest IPO in the Korean cosmetics sector in 2017. It is expected that CTK Cosmetics may raise more than 100 billion won in the IPO.Three Major Reasons Why CTK Cosmetics IPO Will be in Strong Demand:The company has one of the strongest growth in sales and profits with excellent returns on invested capital among Korean cosmetics companies. The company's revenue surged 119.3% YoY to 133.9 billion won and its operating profit jumped 113.9% YoY to 26.7 billion won in 2016. CTK Cosmetics enjoyed one of the highest growth rates for sales and operating profit among the Korean cosmetics companies in 2016. It has a very low reliance on the Chinese market for the exports of its cosmetics products, unlike most other Korean cosmetics companies. In the midst of the THAAD conflict, this is a positive.CTK Cosmetics has a superb, globally renowned customer base. CTK is a cosmetics ODM (original design manufacturing) company mainly for the US and European based global cosmetics powerhouses including Estee Lauder Companies Cl A (EL US), Christian Dior SE (CDI FP), Chanel, and L'Oreal. In addition to cosmetics ODM business, CTK Cosmetics is also involved in the cosmetics packaging business. 

South Korea

CTK is leading innovator in cosmetic packaging and beauty product formation. 

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CTK Cosmetics (260930 KS)

CTK Cosmetics (Part 2) Valuation Analysis - Biggest Korean Cosmetics IPO in 2017

CTK Cosmetics is the biggest IPO in the Korean cosmetics sector in 2017. Bookbuilding starts on November 20th and it should be in strong demand...

Douglas Kim

Impact of China and South Korea Restoring Relations

It was announced on October 31st that the Chinese and South Korean governments plan to restore relations after more than a year of a bitter dispute...

Douglas Kim

CTK Cosmetics IPO Preview (Part 1)

CTK Cosmetics is applying for an IPO in the Korean stock market. The lead banker for this deal is Mirae Asset Daewoo Securities. CTK Cosmetics IPO...

Douglas Kim

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