[Click eStock] "Cheil Worldwide, Excessive Undervaluation Despite Solid Performance"

[Asia Economy Reporter Song Hwajeong] Hanwha Investment & Securities maintained a 'Buy' rating and a target price of 32,000 KRW for Cheil Worldwide on the 19th, stating that despite its solid earnings growth, the company remains excessively undervalued.

Kim So-hye, a researcher at Hanwha Investment & Securities, said, "During the period of increased advertising expenses for Samsung Electronics' wireless business (2012?2014), the average price-to-earnings ratio (PER) was around 24 times, but the current PER based on Cheil Worldwide's expected earnings for this year is only 12 times." She added, "Given the solid earnings growth, the persistent excessive undervaluation presents significant valuation appeal. When new momentum that can raise the multiple beyond stable earnings growth becomes visible, the stock price's upward momentum will strengthen."

Cheil Worldwide's fourth-quarter results last year are estimated to have slightly missed market expectations (consensus) due to the recognition of a one-time special bonus expense. Hanwha Investment & Securities forecasted Cheil Worldwide's fourth-quarter results as a gross profit of 350.1 billion KRW and an operating profit of 66.2 billion KRW. Researcher Kim explained, "Excluding the one-time special bonus of about 6 billion KRW, this represents the highest quarterly operating profit level." She further noted, "Marketing related to new products from major advertisers showed strong performance across both media and digital, with the headquarters' gross profit increasing by 7.5% year-on-year and overseas gross profit showing balanced growth across all regions, estimated to have grown by 17.4%."

Robust profit growth is also expected this year. Hanwha Investment & Securities projected Cheil Worldwide's performance for this year to be a gross profit of 1.38 trillion KRW and an operating profit of 288.6 billion KRW, representing increases of 9.3% and 15.7% respectively compared to the previous year. Researcher Kim said, "The business mix is being reorganized around digital and overseas markets, improving fundamentals," adding, "As Samsung Electronics expands its agency scope, Cheil Worldwide's earnings growth trend is expected to continue for one to two years." She also added, "Especially in the North American region, which is the world's largest advertising market, Cheil Worldwide's agency scale is still small compared to Samsung Electronics' sales in North America, so there is significant growth potential."