[Into the Stocks] Cheil Worldwide, Beyond Performance Recovery to the Second Takeoff Wings Flapping

Valuation Expansion Phase to Experience Again
Stock Market Target Prices Raised Consecutively
Overseas Sector Shifts to Net Growth Trend from Q2 This Year

[Asia Economy Reporter Ji-hwan Park] Cheil Worldwide is dreaming of a second leap this year after overcoming the performance decline shock caused by COVID-19 last year. The base effect of COVID-19 and the resumption of spending by major advertisers have led to a rapid profit growth trend. Additionally, the possibility of further performance level-up through aggressive mergers and acquisitions is becoming visible.

Performance Entering Full Expansion Phase

Cheil Worldwide's performance has shown meaningful recovery this year. On a consolidated basis, Cheil Worldwide's operating profit in Q1 reached 41 billion KRW, a 33.5% increase compared to the previous year. Q2 is also expected to record the highest-ever performance in the 70 billion KRW range, with profit growth exceeding 30% year-over-year. Researcher Kim Hoe-jae of Daishin Securities stated, "Due to the base effect, Samsung's strengthened 5G device marketing, continuous expansion of Samsung's agency volume in North America, and simultaneous growth of affiliated and non-affiliated advertisers in China centered on online, quarterly operating gross profit (GP) and operating profit (OP) are expected to reach record highs." The recent expansion of agency items from wireless-centered marketing to home appliances (Bespoke, TV) and laptops is also positive.

The clear improvement in Cheil Worldwide's performance is analyzed to be partly due to its digital-focused strategy. Although offline advertisements and campaigns decreased due to COVID-19, the digital-focused strategy centered on dot-com advertising succeeded. Even recently, despite a reduction in offline exhibitions, events, and other face-to-face activities, rapid shifts to digital sectors such as e-commerce have led to noticeable performance improvements.

The digital share of total gross profit has grown from 34% in 2018 to 39% in 2019, 43% in 2020, and now approaches 50%. Researcher Cho Tae-na of Heungkuk Securities said, "The expansion of digital content production volume is expected to continue into Q2," adding, "As high growth continues in North America and China and untact marketing takes hold, the digital business share is expected to further expand."

The overseas segment is also a key growth driver for Cheil Worldwide. Above all, from Q2, gross profit in all regions is expected to show net growth. Regions that experienced negative growth in Q1, such as Europe, the Middle East, and Latin America, are expected to achieve net growth from Q2. Growth of over 10% year-over-year is anticipated in all regions including Europe (20.6%), China (13.1%), North America (66.3%), Southeast Asia (34.8%), Southwest Asia (15.0%), and Latin America (15.9%). Researcher Shin Su-yeon of Shin Young Securities stated, "the regions leading Q2 performance improvement are judged to be domestic, North America, Europe, and China," emphasizing, "In North America, projects to increase market share of affiliated wireless products that began last year will further expand this year, enabling high annual sales growth." Europe, the largest overseas sales market, is expected to perform well due to a low base and economic improvement. The China region is expanding non-affiliated advertiser sales by utilizing Color Data, a digital data analytics company acquired a year ago.

Effective Growth Strategy Through Mergers and Acquisitions

Cheil Worldwide has grown its scale through merger and acquisition strategies. It has strengthened competitive capabilities by acquiring companies with marketing business structures worldwide, including Europe, the U.S., and China. Starting with the UK’s BMB in 2008, it has actively invested in M&A and continued its external growth strategy for over a decade. It has pursued gross profit growth strategies by acquiring UK’s Iris in 2014, Pixus Group in 2018, and China’s Color Data last year.

This year as well, it is reviewing acquisitions of companies with competitiveness in growth areas such as digital tech and data. The acquisition targets are expected to be large digital tech and data companies accounting for 5-10% of gross profit. Researcher Nam Hyo-ji of KTB Investment & Securities said, "An M&A deal is expected within the year," adding, "The acquisition is planned at a point when synergy is confirmed by jointly handling major advertiser agency volumes, and if successful, there will be additional upside in performance."

Clear Upward Trend in Stock Price... Securities Firms Expect Further Gains

Cheil Worldwide’s stock price settled in the 25,000 KRW range from 20,600 KRW last year, marking a 21% increase. Securities firms analyze that the strong stock price trend will continue in the second half due to bright performance prospects. Target price upgrades by securities firms are also ongoing. Samsung Securities announced on the 29th that it raised the target price by 7.14% from 28,000 KRW to 30,000 KRW due to upward revisions in net profit estimates for this year and next. Meritz Securities raised the target from 26,000 KRW to 29,500 KRW, a 13.5% increase. KTB Investment & Securities adjusted it from 26,000 KRW to 30,000 KRW, a 15.4% rise.

Cheil Worldwide’s price-to-earnings ratio (PER) expanded from 15.9 times in 2018-2019 to 23.1 times. At that time, the stock price rose to 29,850 KRW. The expansion was largely influenced by the increase in agency volume and the sharp rise in digital share. These are the same reasons driving Cheil Worldwide’s recent performance growth. Researcher Nam Hyo-ji explained, "Despite recent stock price gains, the PER based on this year’s performance is about 15.5 times, and with regional expansion and digital share growth, valuation expansion similar to that seen in 2018-2019 is expected."

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