"Ad Market Weakness Weighs on Q3... Cheil Worldwide Price Target Cut 9.6%" [Click e-Stock]

Meritz Securities maintains "Buy" rating, citing "attractive shareholder returns"

Meritz Securities said on November 10 that it was lowering its price target for Cheil Worldwide, an advertising company, by 9.6% from KRW 26,000 to KRW 23,500. It cut its estimates after the company’s third-quarter operating profit came in below market expectations, but maintained its “Buy” rating. The stock has 20.0% upside potential from its current price of KRW 19,580, the brokerage said.

Cheil Worldwide’s third-quarter operating profit fell 19.7% year on year to KRW 77 billion. Gross profit, calculated as revenue minus cost of sales, decreased 6.4% to KRW 428.1 billion.

Jeong Jisu, an analyst at Meritz Securities, said domestic gross profit fell 3.2% to KRW 97.8 billion. “Growth in the company’s scale slowed as the advertising market recovery was delayed and major advertisers controlled their marketing expenses,” she explained.

Overseas, gross profit fell 16.5% in China and 25.2% in the Middle East, respectively, due to business restructuring in some key regions. It rose 0.1% in North America and 7.6% in Latin America. “Regions such as North and Latin America performed relatively well, preventing a further decline in the company’s overall scale,” Jeong said.

Meritz Securities projected that Cheil Worldwide’s operating profit would fall 15.5% to KRW 284.6 billion this year, then rise 6.5% to KRW 303.1 billion next year. “While major advertisers will continue to face rising costs, premium lines such as Tri-Fold and Glass will be diversified, and marketing will also be strengthened,” Jeong forecast.

Shareholder returns were also cited as a key point. Cheil Worldwide canceled all of its treasury shares on October 15, representing 12% of its total shares outstanding and valued at KRW 282.8 billion based on book value. The company plans to buy back and cancel an additional KRW 140 billion worth of treasury shares by the end of September 2027.

“Even if net income declines, the dividend is expected to remain at least at the 2025 level to meet the requirements for the special tax treatment of separately taxed dividend income,” Jeong said. “With a year-end dividend per share (DPS) of KRW 1,300, the expected dividend yield is 6.4%, making the stock attractive for its dividend.”

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