CEO Greeting

On a standalone basis, product revenue in 2025 declined 8.5% year-on-year to KRW 48.7 billion, from KRW 53.2 billion in 2024, recording negative growth.

The primary cause of the product revenue decline was the destocking process among overseas distributors who had accumulated excess inventory since the COVID-19 pandemic. Our sales team confirmed that actual local sales by overseas distributors did not decrease in 2025; rather, the inventory levels held by distributors and overseas subsidiaries were reduced. This was because improvements in factory operational efficiency in 2024 significantly shortened our lead times, prompting overseas distributors to recognize that they could adequately serve customers even with lower inventory levels of our products, and to consequently reduce their stock holdings.

Operating profit in 2025 declined KRW 4.5 billion (42%) year-on-year to KRW 6.1 billion, and net profit declined KRW 3.2 billion (31%) to KRW 7.2 billion, halting the upward trend in operating profit that had continued since 2021. The key reasons are as follows:

1. 1. Increase in fixed costs, including depreciation, due to the construction of a new ODM factory
2. 2. Increase in SG&A expenses due to the expansion of sales, R&D, and manufacturing headcount in connection with the ODM business expansion
3. 3. Increase in marketing expenses for the irecipe brand

While revenue growth and operating profit growth fell short of expectations in 2025, the product gross margin—which reflects the Company's fundamental competitiveness—has continued to improve.

Product gross margin rose from 28.4% in 2021 to 37.0% in 2025. This is a particularly remarkable figure given that:

1. 1. Revenue declined, increasing the burden of fixed manufacturing costs
2. 2. Additional fixed costs increased due to the ODM business expansion (depreciation from the ODM factory, ODM warehouse, and F2 expansion)
3. 3. Direct labor costs increased due to the expansion of manufacturing headcount for the ODM business

Despite these headwinds, gross margin improved due to:

1. 1. Internalization of operational know-how at the Janghang Smart Factory, reducing manufacturing utility costs and improving manufacturing efficiency year over year
2. 2. Absorption of overseas distributor margins through the expansion of overseas subsidiaries
3. 3. Foreign exchange gains of KRW 1.7 billion recognized in product gross profit, driven by the appreciation of the U.S. dollar, euro, and other currencies in 2025

In 2026, the Company plans to run the cosmetic ingredient factory for nine months to produce a full year's planned volume, and to suspend operations for the remaining three months, thereby significantly reducing manufacturing utility costs. However, it is worth noting the paradox that the factory efficiency improvements in 2025—which gave overseas distributors the confidence that they could receive products at any time—were precisely what led to the decline in product revenue, as distributors reduced their inventory holdings.

The Company is transitioning its global sales model from indirect sales through overseas distributors to direct sales through overseas subsidiaries. This shift aims to provide more immediate service to local customers and to improve operating profit through direct overseas sales.

Sunjin Italy, established in 2022 as the first European subsidiary among Korean cosmetic ingredient manufacturers, continues to deliver strong growth. In 2025, the subsidiary achieved revenue growth of 8% and operating profit growth of 22%, and will begin direct sales in Spain starting 2026.

Sunjin USA, established in 2024 to target the world's largest cosmetics market, commenced direct sales operations in February 2025. The U.S. subsidiary is staffed by five local sales representatives and two sales support personnel. In its first year of operations, it recorded revenue of KRW 2.9 billion and an operating loss of KRW 0.7 billion. For 2026, the subsidiary targets revenue of USD 3.5 million and aims to achieve operating profit breakeven.

In April 2026, the Company plans to establish and operate a new subsidiary in Indonesia, a key hub of the ASEAN beauty market.

The Company is positioning the OEM/ODM business as its future growth driver. To this end, in July 2025, the Company completed the construction of a new factory (total floor area: 4,718㎡, total construction cost: KRW 25.4 billion) at the Janghang National Industrial Complex. The factory has been purpose-built for OTC product manufacturing, with separate facilities for OTC and general cosmetics production from the design stage. OTC products refer to Over-the-Counter drugs—products regulated by the U.S. FDA under OTC drug standards, including sunscreens, acne products, antiperspirants, and anti-dandruff shampoos in the United States. The Company's strategy is to specialize in OTC cosmetic manufacturing domestically while expanding its customer base to general cosmetics.

The Company believes its OEM/ODM business holds a competitive advantage over small and mid-sized domestic OEM/ODM competitors, driven by the following synergies with its existing cosmetic ingredient business:

1. 1. Leveraging the domestic and international recognition of the ingredient business to facilitate early customer acquisition
2. 2. Developing differentiated formulations using proprietary ingredient technologies
3. 3. Possessing API (Active Pharmaceutical Ingredient) manufacturing and quality infrastructure, having successfully passed two consecutive U.S. FDA inspections (2019 and 2025)
4. 4. Manufacturing cost competitiveness through shared utility infrastructure (wastewater treatment, environmental, electrical, and energy systems) with the existing ingredient factory
5. 5. Customer lock-in effect through the use of proprietary ingredients

Furthermore, building on the Company's differentiated OTC-specialized cosmetics manufacturing capabilities—distinct from large-scale OEM/ODM companies—the Company aims to secure prominent domestic and international customers in 2026 and achieve meaningful business progress through:

1. 1. Rapid product development
2. 2. Low initial development costs
3. 3. Flexible MOQ

The cosmetics brand business is another key pillar of the Company's future growth strategy. The notable achievements in 2025 are as follows:

1. 1. Listing in 300 Olive Young offline stores
2. 2. Launch on Kakao Gift
3. 3. Overseas expansion into Japan's Qoo10 and China's Douyin

The Company has raised its dividend payout ratio from approximately 7% to 41% starting this year, and intends to maintain this high dividend policy going forward. Targeting consolidated revenue of KRW 100 billion in 2026, the Company will leverage the vertical value chain it has built—spanning ingredient manufacturing → clinical testing (SCRC) → finished products (OTCM) → brand (irecipe)—and the synergies among these businesses to enhance profitability and deliver the fruits of growth to our shareholders.

Thank you.

March 26, 2026

The 38th Annual General Meeting of Shareholders
Sunjin Beauty Science

CEO   Seongho Lee