Monday, March 30, 2020
Innocean Worldwide: Double-digit Growth in Challenging Times
Growth Expected to Continue
Innocean Worldwide: Double-digit Growth in Challenging Times
  • By Hong Se-jong
  • February 27, 2020, 16:37
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The author is an analyst of Shinhan Investment Corp. He can be reached at -- Ed.


1Q20 consolidated OP forecast at KRW27.9bn (+12.7% YoY)

We expect Innocean Worldwide to report consolidated gross profit of KRW140bn (+23.2% YoY) and operating profit of KRW27.9bn (+12.7% YoY) for 1Q20, with double-digit growth likely to continue despite the COVID-19 outbreak. Gross profit from the domestic business (parent) is projected to increase 1.4% YoY to KRW25.2bn in 1Q20. While ad spend has continued on a downtrend driven by the decline in promotions, the company continues to see solid growth from digital media. Gross profit from the new media business should increase 11.3% YoY.

Overseas gross profit is projected to climb 29.0% YoY to KRW115.2bn in 1Q20. Adding to steady growth in key markets such as the US and Europe, we expect to see a visible boost from the inclusion of Wellcom Group’s earnings in consolidated statements for the full quarter. Profit growth should reach 16.7% YoY in the US and 29.9% YoY in Europe. Growth in China should slow to double-digit levels, but earnings from the region accounts for only a small portion of overall gross profit.

Growth to continue despite challenging conditions

Innocean Worldwide shares are now trading at a 2020F PER of just 15.6x vs. the past four-year average PER of 16.1x. We believe the stock is excessively undervalued considering the full-year boost expected from the launch of GV80 and the acquisition of Wellcom Group. Negative impact of the COVID-19 outbreak will likely be limited. In the domestic market, base effect and digital media growth are offsetting the impact of the drop in promotions and outdoor ads. In overseas markets, gross profit from China should account for just 1.2% vs. 52% from the US.

Retain BUY for a target price of KRW100,000

Our target price for Innocean Worldwide remains unchanged at KRW100,000, based on 2020F EPS and a target PER of 23x. We retain our BUY rating in view of: 1) forecasts for steep operating profit growth in 2020 on M&A effect; 2) boost expected from the new car cycle of the key client; and 3) attractive valuations with shares now trading at a 2020F PER under 16x.