Stability, Growth & Dividends All in Harmony
The author is an analyst of NH Investment & Securities. She can be reached at hzl.lee@nhqv.com. -- Ed.
Cheil Worldwide posted 2Q22 OP of W88.0bn, again resetting its quarterly record. The firm is booking digital-centric top-line growth, and labor cost efficiency is also strengthening alongside a recovery of ad execution driven by re-opening. Moving ahead, new business should continue progressing smoothly. We maintain Cheil Worldwide as our sector top pick.
Stability, growth, & dividends all in harmony; shares trading at low valuations
We maintain a Buy rating and TP of W31,000 on Cheil Worldwide, presenting it as our sector top pick.
The firm has solidified its differentiated strengths based on: 1) sales growth driven by stable captive demand; and 2) increased labor cost efficiency secured via preemptive (digital) restructuring. Over the mid/long-term, new ad-tech related business is to lead growth, and its ample dividend appeal (2022E DY of 4~5%) remains valid. Cheil Worldwide boasts three clear investment points: earnings stability, mid/long-term growth potential, and dividend attractiveness.
Recently, the company’s share price has overly reflected concerns over a slowdown in the ad market amid global macro uncertainties. Its 2022E P/E sits at 13x, touching the bottom of its past five-year P/E band. Backed by its differentiated fundamentals and low valuations, Cheil Worldwide presents significant investment appeal.
2Q22 review: Confirming stable earnings growth
Cheil Worldwide reported another record-high quarterly performance for 2Q22, with consolidated GP of W388.6bn (+23% y-y) and OP of W88.0bn (+22% y-y).
HQ: Sales volume ratcheted up on an expansion of digital platform business at captive advertisers, with overall growth continuing to be propelled by a rise in ad execution volume at non-captive clients.
Subsidiaries: Earnings growth in all regions accelerated on the back of a normalization of BTL advertising stemming from re-opening momentum and a recovery of ad execution. By region, double-digit growth continued in North America on favorable effects from a rise in ad items and business areas for captive clients, while in China, growth was helped by an expansion of non-captive advertisers.
OPM was maintained at 23% despite increased labor costs to strengthen new business capabilities (eg, ad-tech). We view this as a sign that labor efficiency is improving. Cheil Worldwide is forecast to announce quarterly-high earnings once again in 2H22 on the continuation of similar auspicious trends.