Cheil Worldwide Expects Profitability in the Second Half of the Year

[Asia Economy Reporter Park Jihwan] Kiwoom Securities on the 1st forecasted that Cheil Worldwide will maintain a solid move to secure profitability in the second half of the year by improving cost efficiency despite the sluggish advertising market. Accordingly, it gave a 'Buy' investment rating and a target price of 25,000 won.

Namsoo Lee, a researcher at Kiwoom Securities, stated, "The consolidated operating profit for the second quarter recorded 53.8 billion won, down 22.5% compared to the same period last year, and net profit decreased by 24.2% to 33.4 billion won, falling short of consensus."

Researcher Lee said, "Despite strong performance in affiliated retail and North America, operating gross profit decreased by 44.8 billion won year-on-year due to poor results in the headquarters' non-affiliated sectors, Europe, and China, which are major global markets. The non-affiliated ratio in the first half fell from 30% last year to 27%, reflecting the deterioration of the advertising market caused by COVID-19," he explained.

Although selling and administrative expenses were streamlined with a 2% reduction in labor costs and an 11% decrease in other expenses, the decline in operating gross profit prevented an increase in operating profit. However, an improvement trend is expected from the third quarter onward. The researcher noted, "From the end of the first quarter, the impact of COVID-19 intensified, leading to a noticeable decrease in operating revenue due to advertisers' budget adjustments."

As COVID-19 continues, the global advertising market is expected to show regional differentiation, with China anticipated to recover and improve in the second half after a sluggish first half. Growth in North America and Southeast Asia is expected to continue, while Europe is likely to remain weak.

He added, "With the spread of untact culture and marketing, growth in CRM and e-commerce sectors is expected to be prominent, and efficiency centered on digital business will further improve. Even if operating revenue declines due to the downturn in the advertising market, efforts to enhance cost efficiency through internalizing core competencies and utilizing global bases will be effective, resulting in solid profitability," he forecasted.