[Click eStock] "Cheil Worldwide, Temporary Weakness in Q4 Performance... Valuation Appeal Remains"

[Asia Economy Reporter Eunmo Koo] DB Financial Investment analyzed that Cheil Worldwide's fourth-quarter earnings last year slightly missed market expectations, resulting in a temporary downturn, but its valuation appeal remains valid. The investment opinion and target price were maintained at 'Buy' and 30,000 KRW, respectively.

Cheil Worldwide's gross profit in the fourth quarter of last year was 320.1 billion KRW, a 2.6% increase compared to the same period last year, and operating profit rose by 1.7% to 51.6 billion KRW, slightly below market expectations (gross profit 329 billion KRW, operating profit 54.5 billion KRW) based on operating profit.

On the 29th, Shin Eun-jung, a researcher at DB Financial Investment, analyzed in a report that the main cause of the earnings slump was that the overseas subsidiaries' gross profit, which had shown an average quarterly growth rate of 13% until the third quarter of last year, grew by only 2.5% this time. Researcher Shin explained, "Due to the marketing efficiency improvements by major advertisers, advertising expenditures were temporarily reduced, resulting in North America growing by only 5.1% compared to the same period last year, and China decreasing by 9.2%."

However, the fact that Latin America and the Middle East led overall overseas growth centered on digital and non-affiliated sectors was evaluated positively. Total selling and administrative expenses increased by only 2.7% due to cost and labor expense reductions. Researcher Shin stated, "This year, with the normalization of advertising expenditures by major advertisers and growth from non-affiliated advertisers, overseas and digital sectors are expected to continue high growth, with gross profit projected to increase by 7.8% year-on-year to 1.2563 trillion KRW, and operating profit expected to rise by 14.7% to 236.2 billion KRW, showing favorable performance." These figures do not consider small to mid-sized mergers and acquisitions (M&A), and if materialized, they will be positively reflected in earnings estimates.

The investment opinion and target price were maintained at 'Buy' and 30,000 KRW, respectively. Researcher Shin explained, "Despite global advertising agencies recording low growth rates within the 5% range based on operating profit, Cheil Worldwide continues to achieve double-digit earnings growth, and with a dividend payout ratio of 60% this year, the dividend yield is also estimated to be in the 4.0% range. The expected price-to-earnings ratio (PER) for this year is 16.9 times, indicating that the valuation appeal remains valid."