[Click eStock] "Cheil Worldwide Challenges to Turn Profit Growth in Q3"

[Asia Economy Reporter Eunmo Koo] Amid the ongoing impact of the novel coronavirus infection (COVID-19), there is an analysis that Cheil Worldwide will challenge a turnaround to profit growth in the third quarter.

Shinhan Financial Investment estimated on the 20th that Cheil Worldwide's consolidated sales for the third quarter of this year will be 270.6 billion KRW, a 4.8% decrease compared to the same period last year, and operating profit will be 54.6 billion KRW. Researcher Sejong Hong of Shinhan Financial Investment explained in a report on the 20th, "Despite the continued impact of COVID-19, the company's fundamental strength was already proven through the second quarter earnings announcement as it challenged a turnaround to profit growth," adding, "In the second quarter, the main advertisers' advertising expenses recorded an unprecedented decline of 43.0% to 634.5 billion KRW, yet Cheil Worldwide's revenue and operating profit decreased by only 14.6% and 22.5%, respectively." He analyzed that the high digital ratio, dot-com oriented growth, and labor cost reductions largely offset the sharp decline in BTL (Below The Line, such as promotions) volume.

The current situation in the third quarter is evaluated to be significantly better than the previous quarter. Researcher Hong said, "If there is no further spread of COVID-19, this quarter can achieve profit growth," and analyzed, "The consolidated operating profit for the fourth quarter, when the base effect begins, is expected to increase by as much as 31.1% to 67.6 billion KRW, approaching the highest profit ever again."

There is no valuation burden at all. Researcher Hong analyzed, "Cheil Worldwide currently justifies a higher premium compared to global advertising agencies," and added, "If the growth of the main advertisers is guaranteed, the high affiliate ratio is rather attractive due to the business structure."

He also positively evaluated the fact that the market share within the affiliate group is rising through dot-com. As of last year, the net profit scale in China exceeded 16 billion KRW. Pingtai, which contributes more than 50% of regional gross profit, is the third-largest digital company in China. Researcher Hong explained, "Including Cheil's China subsidiary, a corporate value of 500 billion to 1 trillion KRW is possible," and added, "Adding net cash of 450 billion KRW, the values of the headquarters, Europe, and other regions are being severely discounted."

The investment opinion was maintained as 'Buy,' and the target stock price was raised to 25,000 KRW. Researcher Hong said, "This reflects the upward revision of earnings estimates," and stated, "We maintain a buy perspective based on the combined operating profit in the second half turning to growth, a 2021 price-to-earnings ratio (PER) below 13 times, and a dividend yield of over 4%."

This content was produced with the assistance of AI translation services.