Cheil Worldwide: Valuation Appeal Stands Out 

The author is an analyst of NH Investment & Securities. She can be reached at hzl.lee@nhqv.com. — Ed.

Although Cheil Worldwide’s 4Q22 earnings will likely come in below consensus (on reduced year-end marketing execution by some advertisers), it should display continued double-digit top-line growth. New business-driven earnings growth and shareholder-friendly policies should continue in 2023, as well. The firm’s investment attractiveness remains high amid uncertain market conditions.

All-round solid player with outstanding valuation appeal

We maintain a Buy rating and a TP of W35,000 on Cheil Worldwide, continuing to offer it as our sector top pick.

The company boasts three positives working in harmony: 1) earnings stability (with captive sales providing strong ballast); 2) mid/long-term earnings growth potential; and 3) a lofty DPR (60%). Having dropped after its recent ex-dividend date, Cheil Worldwide’s shares are currently trading at a 2023F P/E of only 10x. Viewing the recent share price correction as being excessive, we see strong valuation appeal.

2023: Time for strength in new media to shine

Ongoing concerns toward a global economic slowdown this year are inevitably to reduce advertising spending on traditional media. However, even amid such a situation, we expect advertising players to benefit from anticipated further top-line growth at their new digital media domains.

We believe that this likely new media-driven growth will provide good opportunities for Cheil Worldwide, noting its rich experience in new media as it has been an agent for owned media (dotcom business) operations and digital integrated marketing solutions (Texas Number 1 campaign, etc) for several years. In addition, through the establishment of its digital tech division in 2021, Cheil Worldwide has already pre-emptively prepared itself to thrive in future growth areas such as ad-tech and the metaverse.

4Q22 preview: Impacted by year-end marketing execution, but high sales growth sustaining

We expect Cheil Worldwide to post consolidated 4Q22 GP of W426.9bn (+17% y-y) and consensus-missing OP of W83.8bn (+29% y-y). Despite overlapping with the World Cup event during a peak season for the advertising industry, the firm’s top-line growth will likely come in shy of expectations as some advertisers pre-emptively reduced year-end marketing execution amid ongoing global economic slowdown fears. In addition, OPM growth was likely dampened by higher-than-expected cost hikes.

Although the firm cannot stand completely free of economic slowdown worries, we positively view the fact that it is continuing to deliver double-digit sales growth. Cheil Worldwide’s sales look well set to continue expanding at a rapid clip going forward, supported by both the recruiting of new advertisers (based on abundant references) and the seeking of new M&A opportunities.