[Click eStock] "Innocean Posts Strong 1Q Results Despite Advertising Off-Season... Better Performance Expected in Second Half"

[Asia Economy Reporter Kwon Jae-hee] Kiwoom Securities maintained a 'Buy' rating on Innocean on the 10th, setting a target price of 76,000 KRW.

Despite the off-season for advertising expenses, Innocean posted a gross profit of 164.8 billion KRW and an operating profit of 25.1 billion KRW in the first quarter. This represents increases of 18.1% and 24%, respectively, compared to the same period last year. The growth was driven by increased below-the-line (BTL) promotions such as CES and new car launch events, as well as steady overseas growth, resulting in significant growth due to the base effect from last year's COVID-19 impact.

Innocean is expected to benefit from the reopening effect more in the second half of the year. In overseas markets, growth in the Americas stood out. The Americas recorded a 16.7% growth compared to the previous year, and it is expected that the performance improvement trend will continue after the second quarter with new car marketing and recovery of non-affiliated clients. As a result, the strong first-quarter performance is expected to continue into the second quarter, showing more than 16% growth for the first half of the year. Selling and administrative expenses are also rising simultaneously due to an increase in essential domestic and overseas personnel following the strengthening of digital capabilities. The proportion of labor costs within selling and administrative expenses reached 78%, maintaining the highest recent level. However, this is viewed as a proactive investment to strengthen core digital capabilities, and considering the increasing share of overseas gross profit, the risk of rising labor cost structure is expected to be minimized.

In particular, in the second half of the year, creative capabilities related to advertising and new businesses such as VFX and NFT are expected to be further strengthened through the acquisition of Studio Lennon and collaboration with global VFX company The Mill. Additionally, Hyundai Motor Company became the first in the automotive industry to enter the community-based NFT market, with Innocean also beginning participation. Innocean, which has been steadily enhancing its digital capabilities alongside major advertisers who have declared strategic entry into the metaverse, is expected to generate various business cooperation synergies through creative, performance marketing, and state system establishment.

Researcher Han-gyeol Lee of Kiwoom Securities analyzed, "This year, Innocean is expected to see balanced growth across all business divisions, including major advertisers' eco-friendly new cars and strategic volume models, enhancement of digital creative capabilities, and BTL recovery due to reopening." He added, "Expectations for BTL performance improvement are rising with new car launches such as the full-change Grandeur and Ioniq 6, as well as the Qatar World Cup in November."