Samsung Securities on the 20th said C&C International's profitability worsened because of early inefficiencies from new product launches and production disruptions caused by the adoption of an enterprise resource planning (ERP) system. It kept its investment view at "neutral (HOLD)" and cut its target price to 30,000 won from 50,000 won. The previous trading day's closing price for C&C International was 34,350 won.
In the fourth quarter of last year, C&C International posted sales of 73.2 billion won, up 30% from a year earlier, and operating profit of 1.2 billion won, up 4,416%. The year-over-year growth rate looks high, but that is largely due to a base effect from production disruptions caused by delays in introducing automation equipment.
Lee Ga-young, a Samsung Securities researcher, said, "The operating profit margin (OPM) came in at 1.6%, a sharp deterioration from 9.2% in the prior quarter when there were no productivity issues, and as a result operating profit fell 82% short of market expectations."
Samsung Securities noted that, as C&C International sought to diversify its overseas clients, the share of new products surged, and the prevalence of small-lot, multi-item production significantly hurt production efficiency. It also saw production disruptions stemming from the introduction of the new ERP system.
The researcher explained, "While the direction of diversifying clients is valid for long-term growth, inefficiencies in the early stages of discovering new overseas clients and diversifying products are inevitable for the time being," adding, "There are no conspicuous cases where recently launched new products are seeing large repeat orders materialize in the short term."
They added, "Within K-beauty, the color cosmetics category is still underperforming in Western markets, so sales to domestic brands require a conservative approach, and it will take time for growth to fully take off."