[Asia Economy Reporter Park Jihwan] KTB Investment & Securities evaluated on the 22nd that Cheil Worldwide will again experience a valuation expansion phase. Accordingly, they maintained a 'Buy' investment rating and raised the target price by 15.4% from the previous 26,000 KRW to 30,000 KRW.
Nam Hyoji, a researcher at KTB Investment & Securities, said, "Cheil Worldwide's price-to-earnings ratio (P/E) expanded from 15.9 times to 23.1 times between 2018 and 2019," adding, "At that time, the stock price rose to 29,850 KRW due to the expansion of agency volume and a sharp increase in the digital proportion." He explained that a similar stock price trend is expected this year because major advertisers are strengthening their North American marketing.
Despite the recent stock price increase, the P/E ratio based on this year's earnings is around 15.5 times. It is expected that valuation expansion similar to that seen in 2018-2019 will be possible due to regional expansion and an increase in the digital proportion.
The digital gross profit margin in the first quarter was 48%. Digital gross profit expanded from 281.7 billion KRW in 2017 to 469.9 billion KRW in 2020. This explains why the decrease in gross profit was limited despite a sharp decline in ATL and BTL agency volume last year.
An important point is that North American digital marketing agency services for major advertisers are continuously increasing. Researcher Nam Hyoji explained, "With strengthened advertiser lock-in, a continuous expansion of the digital proportion is expected."
He stated, "Digital agency services in the North American region are expected to expand significantly this year," and added, "We plan to strengthen advertiser lock-in in North America through not only dot-com, social, and data-based marketing but also by expanding performance marketing capabilities."
Researcher Nam said, "We are reorganizing the organization to enhance synergy through organic capability integration among subsidiaries and to strengthen technology, consulting, and solution capabilities," and added, "Two additional agency regions will be added, and we are preparing to expand e-commerce agency services in collaboration with the existing Dallas corporation."
The proportion of North American region GP is expected to rapidly expand from 4.9% in 2019 to 6.5% in 2020 and 8.3% in 2021. Cheil Worldwide's annual gross profit for this year is estimated at 1.2 trillion KRW, a 10.4% increase from the previous year, and operating profit is estimated at 245.8 billion KRW, a 19.9% increase.
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