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The author is an analyst of KB Securities. He can be reached at — Ed.

Maintain BUY; lower target price to KRW31,000     

We maintain BUY on Cheil Worldwide but lower our TP by 6% to KRW31,000 (14.7x 2023 implied P/E; derived via P/B-ROE model) to accommodate an 8% downward revision to 2023E NP (attributable to controlling interests). We expect growth to slow given that the ad market is showing signs of easing. However, the company should still achieve single-digit growth this year, as it does not rely heavily on its media/non-affiliated segments, which are highly cyclical. 

4Q22 preview: OP to miss market consensus     

We forecast 4Q22 GP at KRW426.7bn (+16.5% YoY) and OP at KRW80.7bn (+24.2% YoY), which is below the market consensus by 8.8%. Despite high-demand seasonality, GP growth should be hampered by a decrease in ad spending, which should be especially marked at domestic/non-affiliated clients. HQ GP should inch down QoQ to KRW90.9bn. OPM should drop QoQ, but increase YoY, on rising labor costs (59.7% of GP). 

Growth to continue this year 

Despite a high base created by sharp growth in 2022, we see Cheil Worldwide continuing to grow this year on the back of stable order intake and an increase in no. of non-affiliated clients. In terms of affiliated business, the company should increase its penetration rate by boosting the proportion of digital ads while enjoying a post-pandemic increase in BTL/retail order receipts. Regarding non-affiliated business, concerns over lower ad spending should be alleviated by portfolio diversification via new clients. We see profitability improving; with a high proportion of fixed costs, GP growth should translate directly into profit improvement (2023E OP/GP at 21.2%). 



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