[Click eStock] "Innocean to Miss 2Q Operating Profit Forecast... Target Price Down"

[Asia Economy Reporter Myunghwan Lee] IBK Investment & Securities announced on the 22nd that it maintains a buy rating on Innocean but lowers the target price from 76,000 KRW to 71,000 KRW. This is due to the expectation that the company will report earnings below market forecasts for the second quarter of this year and that earnings per share (EPS) will decline.

IBK Investment & Securities forecasts Innocean's gross profit for the second quarter of this year to increase by 10.4% year-on-year to 174.6 billion KRW, while operating profit is expected to decrease by 6.0% to 30.6 billion KRW. The gross profit is roughly in line with market expectations, but operating profit is expected to fall short of forecasts.

On the surface, despite no new car launches from affiliates Hyundai Motor and Kia, steady growth is expected due to an increase in non-affiliate advertising agency volume centered in the Americas. However, it is anticipated that profitability will deteriorate due to increased fixed costs from the Russia-Ukraine war and the impact of China's COVID-19 lockdowns. IBK Investment & Securities projects that the proportion of non-affiliate advertising agency business will be around 35% based on gross profit and will continue to expand.

IBK Investment & Securities expects Innocean to show a clear pattern of a weak first half and strong second half this year. Gross profit for the second half of this year is forecast to increase by 8.8% year-on-year to 403.8 billion KRW, and operating profit is expected to rise by 6.9% to 88.6 billion KRW. The momentum from affiliates' new car launches is expected to fully materialize in the second half, with performance improvement effects becoming prominent following the Busan Motor Show in the third quarter and new eco-friendly brand lineups such as Hyundai's 'Ioniq 6' and Kia's 'EV6 GT', as well as facelifted models like the Palisade, Seltos, and Grandeur. Performance improvement related to the Qatar World Cup scheduled for November is also anticipated. Due to the affiliate's sponsorship of FIFA, the positive impact on performance is expected to be greater than that of other sporting events.

Researcher Hwanwook Lee of IBK Investment & Securities stated, "Although temporary earnings adjustments have occurred due to concerns about a global economic recession, the Russia-Ukraine war, and COVID-19 lockdowns, the company continues to achieve quality growth annually," adding, "Currently, Innocean's valuation is passing through the lower end of its historical band, indicating an undervalued range."

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