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LG Household & Healthcare (common: 051900 KS, preference share: 051905 KS) is South Korea’s second-largest cosmetics company.
It owns brands such as “The Face Shop”, “The mystery of Whoo”, and “su:m37°”. It’s also one of Korea’s largest fast-moving consumer goods companies with 30%+ market shares in toothpaste, shampoos, detergents, fabric softeners, etc. And finally, the company also runs the Coca-Cola bottling operation for South Korea.
What’s unique about LG Household & Healthcare (“LG H&H”) is that it’s run by capable former Procter & Gamble executive Suk Cha. He’s a genius at brand-building. And he’s done several intelligent acquisitions for the company.
For example, in 2007, Suk Cha acquired 90% of Coca-Cola’s bottling operations in Korea for KRW 287 billion. In 2010, he acquired Haitai beverage for a token amount. Today, the beverage segment makes almost KRW 200 billion in profits each year, mostly from these two acquired companies.
Since Suk Cha took in 2005, LG H&H’s revenues have grown eight-fold and earnings per share ten-fold. Despite being an acquisitive company, return on equity has consistently been above 20%. Such a high return on equity is unusual in a Korean context.
While the Korean cosmetics market is mature, the Chinese cosmetics market has tremendous potential. According to Euromonitor, the per consumption of cosmetics is only €35 in China compared with €208 in South Korea. It’s plausible that China’s cosmetics market could eventually grow somewhere around 5x to 7x in real terms.
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