[Click e-Stock] "Cheil Worldwide: Shareholder Returns to Offset Weak Earnings...Target Price Lowered"

On October 6, NH Investment & Securities analyzed that Cheil Worldwide's shareholder return policy is likely to offset its poor business performance. However, it lowered its target price from 24,000 won to 23,000 won, while maintaining its 'Buy' recommendation.

Hwajeong Lee, a researcher at NH Investment & Securities, commented, "Annual earnings estimates were revised downward by 16%, reflecting the prolonged control over marketing budget execution by affiliate advertisers." She added, "However, we also considered that the reduction in the number of outstanding shares due to Cheil Worldwide’s planned cancellation of 12% of its treasury shares on October 15 will offset a significant portion of the decline in earnings per share (EPS) resulting from weaker profits."

Although the disappointing results are regrettable, the emphasis is on Cheil Worldwide’s active shareholder return measures to compensate for this. At the end of last month, Cheil Worldwide disclosed the complete cancellation of 12% of its existing treasury shares along with an additional plan for treasury share repurchases and cancellations. For these additional buybacks and cancellations, the company plans to proceed sequentially: 40 billion won by the end of 2026 and 100 billion won by the end of September 2027. Lee highlighted, "Investors should closely watch the meaningful enhancement in per-share value that comes from the reduction in outstanding shares," and added that "despite a profit decline this year, the annual dividend per share (DPS) is projected to remain at last year’s level of 1,230 won. The expected dividend yield for 2026 will be 6.5%; thus, this aggressive shareholder return policy is expected to serve as a strong support for the stock price."

Cheil Worldwide’s earnings for the third quarter of this year are expected to fall short of market expectations. Lee forecasts, "Consolidated gross profit for the third quarter will increase by 1% year-on-year to 460.4 billion won, and operating profit will decrease by 15% to 81.9 billion won, drastically underperforming the market consensus." She explained, "The ongoing cost controls imposed by captive (affiliate) advertisers are lasting longer than initially anticipated, and despite the launch of foldable flagship products, the rise in memory prices has led to reduced marketing expenses."

The sluggish performance is not expected to be prolonged. Lee projected, "By 2027, budget execution by captive advertisers should normalize, while workforce efficiency at underperforming overseas subsidiaries such as those in Europe and China will begin to yield tangible results."

This content was produced with the assistance of AI translation services.