[Click eStock] "Innocean, Excessive Undervaluation Despite Top-Level Performance"

[Asia Economy Reporter Song Hwajeong] Daishin Securities maintained its 'Buy' rating and a target price of 90,000 KRW for Innocean on the 21st, viewing the company as being excessively undervalued at historically low levels.

Innocean's fourth-quarter results last year are expected to be the highest on a quarterly basis. Daishin Securities estimated Innocean's fourth-quarter gross profit (GP) to be 180 billion KRW, an 8% increase compared to the same period last year, while operating profit is estimated at 38.6 billion KRW, a 7% decrease. Kim Hoejae, a researcher at Daishin Securities, explained, "The company achieved record quarterly results in both the second and third quarters, and the fourth quarter is also expected to be the highest quarterly performance. The reason for achieving record results each quarter is the continued golden cycle of new car launches, with new cars being released in North America and Europe within 1 to 3 quarters after domestic launch." He added, "Based on 2020 figures, North America, which accounts for 53% of gross profit, has seen continuous performance improvement due to increased sales of Hyundai and Kia vehicles. Although the fourth quarter shows a slight decrease due to a high base effect from the previous year, performance is expected to be solid, comparable to pre-COVID levels."

Marketing for the Genesis brand, N brand, and electric vehicles is being strengthened, and this year marketing efforts for hydrogen vehicles and autonomous driving, which were previously absent, are also expected to increase. The proportion of non-affiliated clients across the company was 32% as of the third quarter last year, up 9 percentage points from 23% in the fourth quarter of 2019. Kim said, "Last year, we acquired Difpurple to strengthen digital capabilities, and M&A activities in the digital sector are expected to continue this year. Through M&A, not only will non-affiliated advertisers be recruited, but Hyundai and Kia's digital agency business will also expand."

Despite excellent performance, the stock price remains excessively undervalued. Kim stated, "With cash holdings of 700 billion KRW compared to the current market capitalization of 1 trillion KRW, the ratio is 1.6 times, significantly below the historical average of 2.0 times, representing an all-time low and excessive undervaluation. Although Innocean shows higher gross profit and operating profit growth rates and higher margins compared to global advertising agencies such as WPP, Omnicom, and Publicis, its price-to-earnings ratio (PER) is similar, indicating undervaluation relative to global peers."