Innocean Worldwide
The author is an analyst for NH Investment & Securities. She can be reached at hzl.lee@nhqv.com -- Ed.
Innocean posted an earnings surprise for 2Q23. Although its operating expenses rose due to preemptive investment in labor force, this cost burden was offset by an increase in ad execution. Considering such, we boost our earnings estimates, in turn raising our TP to W58,000.
Top-line growth stands out
We raise our TP on Innocean Worldwide by 5% to W58,000 (from W55,000), as we revise up our earnings forecasts, drawing attention to its differentiated top-line growth despite unfavorable market conditions. Amid stable execution of ad budget at captive clients (new car marketing), we can also confirm a recovery of non-captive execution (via preemptive labor force investment). But, with additional M&As being looked at following the acquisition of D-Plan 360 (media rep player) and the establishment of a content JV, we foresee a sustained structural cost rise in 2H23.
Concerns already reflected in share price
We maintain Buy on Innocean Worldwide. Despite the slow pace of advertising market recovery, most of the related concerns appear already to be baked into share price. Thus, we believe that focus should be on the fact that benefits of workforce investment (in a form of expanding ad budget execution by non-captive clients) are being evidenced even without an industry recovery, confirming that the firm’s new venture investments are proceeding efficiently. And, dividend appeal (DY of 4.8% (interim of 1.1% + final of 3.7%)) remains as a valid investment point.
2Q23 review: Top-line growth overcomes SG&A burden
Innocean Worldwide posted an earnings surprise for 2Q23, announcing consolidated GPM of W213.5bn (+20% y-y) and OP of W41.7bn (+61% y-y), backed by stable captive growth added to non-captive recovery.
HQ: OP of W9.6bn (+489% y-y). Despite rising SG&A expenses, captive-driven stable top-line growth (from new model rollouts (EV6) and BTL (motor show)) was in force.
Overseas: OP of W32.1bn (+32% y-y). While US dollar strength remained a factor, the benefits of new model rollout by captive client in the Americas continued, and signs of recovery for ad campaigns by non-captive clients were also observed.