[Click eStock] "Cheil Worldwide, Operating Profit Expected to Reach 90 Billion KRW for the First Time"

[Asia Economy Reporter Hwang Yoon-joo] Daishin Securities maintained a 'Buy' rating and a target price of 33,000 KRW for Cheil Worldwide on the 28th, expecting a record high performance for nine consecutive quarters.

Kim Hoe-jae, a researcher at Daishin Securities, stated, "The gross profit (GP) for the third quarter is expected to increase by 13% year-on-year to 370 billion KRW, and operating profit (OP) is projected to rise by 29% to 90.8 billion KRW."

Researcher Kim analyzed, "This marks the highest quarterly sales and operating profit for nine consecutive quarters, and the highest operating profit across all previous quarters," adding, "It is expected to be the first time quarterly operating profit exceeds 90 billion KRW."

He explained, "Despite the off-season and concerns about economic recession, the strong performance is due to a captive ratio of around 70% and a small proportion of media spending affected by the economy."

He also added, "Growth continues to be centered on digital, and demand for below-the-line (BTL) advertising is recovering with the return to normal daily life."

The digital segment expanded to 52% as of the second quarter. Since digital is a new media where new channels are steadily being discovered, it is a high-commission area for advertising agencies like Cheil Worldwide.

When Cheil Worldwide's operating profit margin (OPM) fell to a historic low of 13.4% in 2015, the digital ratio was only 28%, but it expanded to 52% by the second quarter of this year.

Researcher Kim said, "Compared to 2015, the operating profit margin in the second quarter of this year expanded to 22.7%," and predicted, "The operating profit margin for the third quarter will reach 24.7%, the highest since 2013."

Performance in the North American region is also positive. The proportion of Cheil Worldwide's sales to Samsung Electronics' sales averages 0.46% across all regions, but in the Americas, including North America, it is only 0.15%. Over the past two years, Cheil Worldwide has strengthened Samsung Electronics' digital marketing in North America, resulting in North American sales growing by an average of 50% year-on-year each quarter.

Researcher Kim analyzed, "Even if Samsung Electronics maintains its current marketing expenses, if the agency's share in the Americas increases to the average level, Cheil Worldwide's sales will increase by 22% (280 billion KRW)."