[Click eStock] "Innocean 1Q Operating Profit Expected to Decrease 20% YoY"

1Q Operating Profit Expected at 21.8 Billion Won... Below Consensus
Residual Impact of COVID-19... New Car Advertising Less Reflected
Benefits Expected as Hyundai and Kia Launch Strategic Models

[Asia Economy Reporter Minwoo Lee] Innocean is expected to post somewhat sluggish results in the first quarter of this year. However, it is analyzed that the company will benefit as major advertisers such as Hyundai and Kia launch new cars and begin full-scale marketing activities.

On the 9th, Kiwoom Securities forecast that Innocean will record consolidated sales of 334.9 billion KRW and an operating profit of 21.8 billion KRW in the first quarter of this year. This represents a decrease of 2.6% and 19.6%, respectively, compared to the same period last year. The operating profit is expected to fall short of the market consensus of 27 billion KRW.

Although advertising executions continue in line with the new car launch schedules of major advertisers such as Hyundai Motor and Kia Motors, it is evaluated that the impact of COVID-19 both domestically and internationally has affected the results. Additionally, the full-scale execution of the Ioniq 5 and Kia corporate identity (CI) changes has not yet been reflected significantly in the performance. However, with plans to expand the electric vehicle lineup and proceed with Kia CI changes overseas, mid- to long-term performance improvements are expected.

In particular, more strategic models are expected to be launched after the second quarter, bringing benefits. The 'Staria,' introduced at the end of the first quarter, along with the official launch of Ioniq and the Santa Fe, are expected to be reflected in the second quarter results. In the second half of the year, marketing activities to strengthen distinctive brands such as the expansion of the N brand, Genesis electric vehicles, GV60, and GV90 are anticipated to be active. Namsoo Lee, a researcher at Kiwoom Securities, explained, "As advertising strategies differ by product lineup, the four brand lineups of Hyundai, Kia, Genesis, and Ioniq will each release individual advertisements tailored to the characteristics of their vehicles, leading to stable performance improvements through internal orders among affiliates. The mergers and acquisitions (M&A) being prepared to strengthen digital transformation will contribute to performance improvement by reducing costs through strategic expansion and internalization of new media."

Kiwoom Securities estimates that Innocean will record total gross profit of 644.9 billion KRW and operating profit of 131.4 billion KRW this year. This represents an increase of 10.1% and 17.8%, respectively, compared to last year. The researcher added, "Due to last year's acquisition of the Welcome Group, consolidated selling and administrative expenses increased by about 20%, but this year, only expenses related to performance such as sales will occur according to personnel plans and structural establishment, showing a stable annual trend." Based on this background, the investment opinion 'Buy' and target stock price of 80,000 KRW were maintained. The closing price on the previous day was 61,300 KRW.