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TitleCheil HSBC Mar11
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Total Pages28
Table of Contents
                            Front Page (Page View)
	Financials & valuation
	Investment summary
		Introduction
		Key beneficiary of easing regulations
		Global expansion
		The SEC factor
			Captive market provides stability
			SEC’s marketing spend to increase
		Stable domestic market
		Earnings estimates
		Valuation and risks
	Valuation and risks
		CWW ready to return to its historical high PE ratio
		High correlation with SEC
		Downside risks to our call
		Key catalysts
		Samsung Electronics
			Valuation
			Risks
	Earnings forecasts
		Overseas billings growth
		Increasing ad spend by SEC
		Opportunity from deregulation in terrestrial advertising
			Sensitivity analysis
		Company profile
	Company analysis
		Economic conditions
		Global expansion
		Deregulation
			Advertising prices
			Market share
			Commission rate
			Ad production revenue
		SEC’s marketing to increase
		Shareholder policy
		KRW appreciation
	Disclosure appendix
		Analyst Certification
		Important disclosures
			Stock ratings and basis for financial analysis
		Rating definitions for long-term investment opportunities
			Stock ratings
		Rating distribution for long-term investment opportunities
			As of 25 March 2011, the distribution of all ratings published is as follows:
		Share price and rating changes for long-term investment opportunities
		HSBC & Analyst disclosures
		Additional disclosures
	Disclaimer
	Global Telecoms, Media & Technology Research Team
                        
Document Text Contents
Page 1

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Global Research


Market leader. Cheil Worldwide (CWW) is the largest advertising company in Korea,

specialising in agency services and production. It is the primary advertising firm for

Samsung Electronics (SEC), the world’s largest consumer electronics company. CWW,

currently ranked 19th, aims to be a global top 10 advertising company by 2012.

Overseas expansion. After downsizing in 2009, CWW is expanding overseas again. The

number of overseas employees rose 15% in 2H10 and it is tapping holdings of

KRW440bn to fund overseas acquisitions. We assume two acquisitions a year

(cKRW25bn each) to drive 15% CAGR in overseas billings over 2011-13e.

The Samsung factor. Samsung Group owns 18.3% of CWW and we estimate SEC

accounts for 70% of consolidated billings. CWW’s stronger overseas focus should help it

win a bigger share of SEC’s growing global ad spend for smartphones, tablet PCs and

smart TVs. CWW has a high correlation with SEC shares (R-square of 0.82).

Deregulation. CWW’s terrestrial ad market share (15.7%) and commission rate (10.6% vs.

industry average 11%) are artificially capped by Korea Broadcast Advertising Corp

(KOBACO). This may soon change as a bill that will ease these restrictions may be passed

later this year. We forecast stable domestic ad market growth (+2.4% y-o-y) based on a high

correlation with GDP, and HSBC’s forecast of nearly 5% GDP growth in 2011-12e.

Valuation. Our target PE of 19x 2011e EPS is CWW’s four-year average historical high,

which we think is reasonable based on: 1) stronger overseas growth; 2) the relationship

with SEC; 3) domestic deregulation. Key catalysts are overseas acquisition

announcements, news on deregulation, rising competition in the global consumer

electronics market. Key risks are a high level of dependency on SEC, weaker

domestic/global economy, delay in deregulation and significant KRW appreciation.



Overweight
Target price (KRW) 17,000
Share price (KRW) 13,700
Potential return (%) 26.4

Dec 2009a 2010e 2011 e

HSBC EPS 794.02 660.38 845.39
HSBC PE 17.5 21.0 16.4

Performance 1M 3M 12M

Absolute (%) 1.5 3.3 5.3
Relative^ (%) -2.9 3.0 -13.1

Note: (V) = volatile (please see disclosure appendix)

28 March 2011

Howon Rim*
Analyst
The Hongkong and Shanghai Banking
Corporation Limited, Seoul Securities
Branch
+822 3706 8767
[email protected]

View HSBC Global Research at:
http://www.research.hsbc.com

*Employed by a non-US affiliate of
HSBC Securities (USA) Inc, and is not
registered/qualified pursuant to FINRA
regulations

Issuer of
report:

The Hongkong and
Shanghai Banking
Corporation Limited, Seoul
Securities Branch

Disclaimer &
Disclosures
This report must be read
with the disclosures and
the analyst certifications in
the Disclosure appendix,
and with the Disclaimer,
which forms part of it


Telecoms, Media & Technology
Media
Equity – Korea

Company report


Enterprise value (KRWb) 970
Free float (%) 100
Market cap (USDm) 1,429
Market cap (KRWb) 1,599

Source: HSBC

Index^ KOSPI INDEX
Index level 2,037
RIC 030000.KS
Bloomberg 030000 KS

Source: HSBC

Cheil Worldwide (030000)

Initiate OW: Bullish on deregulation, overseas growth

 Korea’s largest ad agency, CWW, is expanding overseas and
can capture greater share of ad spend by affiliate SEC

 Deregulation should allow CWW to grow its share of the
domestic market

 Initiate with OW and TP of KRW17,000 based on 19x 2011e
PE, implying 26% potential return

http://www.research.hsbc.com/
http://www.research.hsbc.com/

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Financials & valuation
Financial statements

Year to 12/2009a 12/2010e 12/2011e 12/2012e

Profit & loss summary (KRWb)

Revenue 540 615 625 718
EBITDA 55 63 78 104
Depreciation & amortisation -8 -7 -7 -7
Operating profit/EBIT 47 56 70 96
Net interest 19 16 9 9
PBT 100 134 119 146
HSBC PBT 100 134 119 146
Taxation -9 -29 -21 -26
Net profit 91 105 97 120
HSBC net profit 91 76 97 120

Cash flow summary (KRWb)

Cash flow from operations 86 23 63 104
Capex -1 -7 -7 -7
Cash flow from investment -74 -13 -11 -11
Dividends -35 -37 -37 -44
Change in net debt -26 -28 -19 -53
FCF equity 56 -8 45 101

Balance sheet summary (KRWb)

Intangible fixed assets 0 0 0 0
Tangible fixed assets 65 65 65 64
Current assets 780 839 870 938
Cash & others 413 440 455 506
Total assets 1,032 1,120 1,184 1,298
Operating liabilities 455 446 453 493
Gross debt 4 3 0 -2
Net debt -409 -436 -455 -508
Shareholders funds 557 647 707 783
Invested capital -23 17 26 3


Ratio, growth and per share analysis

Year to 12/2009a 12/2010e 12/2011e 12/2012e

Y-o-y % change

Revenue -6.1 13.8 1.7 14.9
EBITDA 40.4 13.9 23.4 33.6
Operating profit 42.8 17.7 26.1 37.0
PBT -7.4 33.5 -11.3 23.0
HSBC EPS 5.2 -16.8 28.0 23.0

Ratios (%)

Revenue/IC (x) -35.7 -243.0 28.7 49.4
ROIC -284.9 -1733.9 264.9 544.8
ROE 17.2 12.6 14.4 16.1
ROA 9.1 9.8 8.5 9.6
EBITDA margin 10.2 10.2 12.4 14.4
Operating profit margin 8.8 9.1 11.3 13.4
EBITDA/net interest (x)
Net debt/equity -73.4 -67.5 -64.4 -64.9
Net debt/EBITDA (x) -7.4 -6.9 -5.9 -4.9
CF from operations/net debt

Per share data

EPS reported (fully diluted) 791.45 912.65 845.71 1039.90
HSBC EPS (fully diluted) 794.02 660.38 845.39 1039.57
DPS 8500.00 340.00 380.00 420.00
NAV 121096.99 5621.75 6144.67 6804.57




Valuation data

Year to 12/2009a 12/2010e 12/2011e 12/2012e

EV/sales 1.9 1.6 1.5 1.1
EV/EBITDA 18.5 15.4 11.8 7.9
EV/IC 55.5 35.1 283.5
PE* 17.5 21.0 16.4 13.4
P/NAV 0.1 2.5 2.3 2.0
FCF yield (%) 3.9 -0.6 3.3 7.6
Dividend yield (%) 61.2 2.4 2.7 3.0

Note: * = Based on HSBC EPS (fully diluted)




Price relative

4508

6508

8508

10508

12508

14508

16508

2009 2010 2011 2012

4508

6508

8508

10508

12508

14508

16508

Cheil Worldwide Rel to KOSPI INDEX


Source: HSBC


Note: price at close of 24 Mar 2011

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Overseas billings growth
CWW is focusing on expanding overseas as the

domestic ad market growth is slowing down and

SEC continues to increase its overseas presence as

a global company.

CWW says it is looking at least two companies in

the US and China and notes that potential

acquisitions may happen as early as this year. We

think CWW’s cash and equivalents, which we

estimate at KRW440bn, are sufficient to fund

acquisitions. We assume two overseas

acquisitions per year (cKRW25bn each) over

2011-13e, the same level of acquisition for CWW

in 2009. There could be more substantial

acquisitions going forward, but we make this

assumption due to limited visibility.

CWW downsized the number of overseas

subsidiaries in 2009 due to the poor economic

outlook and resulting reduction in SEC’s

marketing expenditure. SEC’s consolidated

marketing expense declined by 3% from

KRW6.8trn to KRW6.6trn in tandem with the

economic downturn resulting from the global

financial crisis in 2009.

Earnings forecasts

 Overseas billings growth of 23% during 2011-13e driven by

overseas acquisitions and organic growth

 SEC’s increasing advertisement spending to drive consolidated

billings to grow by 16% during the same period

 Deregulation to benefit CWW on higher commission rate and

greater market share in the terrestrial ad market



Overseas billings trend Equity method gain trend

-

500

1,000

1,500

2,000

2,500

3,000

'05 '06 '07 '08 '09 '10 '11e '12e '13e

50%

55%

60%

65%

70%
Ov erseas
Overseas as % of total billing





0

20

40

60

80

100

'06 '07 '08 '09 '10 '11e '12e '13e

0%

50%

100%

150%

200%

OP
Equity method gain
Equity method gain as % of OP

(KRW bn)


Source: Company data, HSBC Source: Company data, HSBC

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However, from 2010, CWW started expanding

overseas again through organic growth, as seen

from the rebound in number of

overseas subsidiaries.

We expect overseas billings to rise at a CAGR of

23% during 2011-13e. This should translate into

greater overseas revenue and increase in net

equity gain going forward. Specifically, we expect

net equity method gain of CWW to have a CAGR

of 29% during 2011-13e.

Increasing ad spend by SEC
We estimate SEC’s ad spending to account for

80% of CWW’s consolidated billings. As a result,

there is a high correlation between SEC’s ad

spending and CWW’s consolidated billings.

We expect the strong market growth of new

electronic devices such as smartphones, tablet PCs,

and smart TVs, amid intensifying competition,

should lead to increased ad spending by SEC.

Specifically, SEC plans to launch a full line-up of

smartphones (from high end handsets to mass

targeted handsets) in 2011 and also build a

diversified tablet PC line-up during the year.

Through these efforts, SEC aims to achieve more

than 100% growth in smartphone shipments in

2011 and exceed overall market growth of more

than 40%, which should lead to continued growth

in global handset market share.

SEC plans to focus more on increasingly popular

high-end TVs such as LED, 3D, and smart TVs in

2011. Specifically, for LED TVs, SEC expects its

portion to increase among LCD TVs from 20% in

2010 to 51% in 2011.

We expect SEC’s marketing expense as a

percentage of total sales to increase from 5.0% in

2010 to 5.3% in 2011, implying a 15% y-o-y

increase in SEC’s marketing budget in 2011e.

Opportunity from deregulation
in terrestrial advertising
We expect CWW to benefit from the deregulation

of the terrestrial ad market in Korea. Due to the

anticipated launch of new broadcasting companies

around 4Q this year, and possible legislation to

allow private media representatives, we think

CWW may be able to increase its market share

and commission rate for terrestrial ads, which is in

effect currently limited by KOBACO.

As a result, we expect CWW to increase its

market share in the overall domestic ad market to

14.7% by 2013 from 12.8% in 2010.

Sensitivity analysis

As the new broadcasting companies are preparing

to launch their services from 4Q 2011, we believe

there is a high chance that the government may

allow the entry of private media representatives



SEC’s marketing spending vs. CWW’s billings Domestic market share to increase from deregulation

0

2

4

6

8

10

'01 '02 '03 '04 '05 '06 '07 '08 '09 '10e '11e

3%

4%

4%

5%

5%

6%

6%

Total marketing spending
Marketing as % of sales

(KRW tr)





-

2,000

4,000

6,000

8,000

10,000

'06 '07 '08 '09 '10 '11e '12e '13e

10%

11%

12%

13%

14%

15%

Domestic ad market
CWW's domestic billing
Domestic M/S

(KRW bn)


Source: Company data, HSBC Source: Company data, HSBC

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Disclaimer
* Legal entities as at 31 January 2010
'UAE' HSBC Bank Middle East Limited, Dubai; 'HK' The Hongkong and Shanghai Banking
Corporation Limited, Hong Kong; 'TW' HSBC Securities (Taiwan) Corporation Limited; 'CA' HSBC
Securities (Canada) Inc, Toronto; HSBC Bank, Paris branch; HSBC France; 'DE' HSBC Trinkaus &
Burkhardt AG, Dusseldorf; 000 HSBC Bank (RR), Moscow; 'IN' HSBC Securities and Capital Markets
(India) Private Limited, Mumbai; 'JP' HSBC Securities (Japan) Limited, Tokyo; 'EG' HSBC Securities
Egypt S.A.E., Cairo; 'CN' HSBC Investment Bank Asia Limited, Beijing Representative Office; The
Hongkong and Shanghai Banking Corporation Limited, Singapore branch; The Hongkong and
Shanghai Banking Corporation Limited, Seoul Securities Branch; The Hongkong and Shanghai
Banking Corporation Limited, Seoul Branch; HSBC Securities (South Africa) (Pty) Ltd, Johannesburg;
'GR' HSBC Pantelakis Securities S.A., Athens; HSBC Bank plc, London, Madrid, Milan, Stockholm,
Tel Aviv, 'US' HSBC Securities (USA) Inc, New York; HSBC Yatirim Menkul Degerler A.S., Istanbul;
HSBC México, S.A., Institución de Banca Múltiple, Grupo Financiero HSBC, HSBC Bank Brasil S.A. -
Banco Múltiplo, HSBC Bank Australia Limited, HSBC Bank Argentina S.A., HSBC Saudi Arabia
Limited., The Hongkong and Shanghai Banking Corporation Limited, New Zealand Branch.

Issuer of report
The Hongkong and Shanghai Banking
Corporation Limited, Seoul Securities
Branch
7th Floor, HSBC Building

25, 1-ka, Bongrae-dong

Chung-ku, Seoul 100-161, Korea

Telephone: +822 3706 8700/3

Fax: +822 3706 8797

Website: www.research.hsbc.com

This document has been issued by The Hongkong and Shanghai Banking Corporation Limited, Seoul Securities Branch ("HSBC") for the
information of its institutional and professional customers; it is not intended for and should not be distributed to retail customers. If it is received by a
customer of an affiliate of HSBC, its provision to the recipient is subject to the terms of business in place between the recipient and such affiliate.
This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. HSBC
has based this document on information obtained from sources it believes to be reliable but which it has not independently verified; HSBC makes no
guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of
the Research Division of HSBC only and are subject to change without notice. HSBC and its affiliates and/or their officers, directors and employees
may have positions in any securities mentioned in this document (or in any related investment) and may from time to time add to or dispose of any
such securities (or investment). HSBC and its affiliates may act as market maker or have assumed an underwriting commitment in the securities of
companies discussed in this document (or in related investments), may sell them to or buy them from customers on a principal basis and may also
perform or seek to perform investment banking or underwriting services for or relating to those companies.
HSBC Securities (USA) Inc. accepts responsibility for the content of this research report prepared by its non-US foreign affiliate. All U.S. persons
receiving and/or accessing this report and wishing to effect transactions in any security discussed herein should do so with HSBC Securities (USA)
Inc. in the United States and not with its non-US foreign affiliate, the issuer of this report.
In the UK this report may only be distributed to persons of a kind described in Article 19(5) of the Financial Services and Markets Act 2000
(Financial Promotion) Order 2001. The protections afforded by the UK regulatory regime are available only to those dealing with a representative of
HSBC Bank plc in the UK. In Singapore, this publication is distributed by The Hongkong and Shanghai Banking Corporation Limited, Singapore
Branch for the general information of institutional investors or other persons specified in Sections 274 and 304 of the Securities and Futures Act
(Chapter 289) (“SFA”) and accredited investors and other persons in accordance with the conditions specified in Sections 275 and 305 of the SFA.
This publication is not a prospectus as defined in the SFA. It may not be further distributed in whole or in part for any purpose. The Hongkong and
Shanghai Banking Corporation Limited Singapore Branch is regulated by the Monetary Authority of Singapore. Recipients in Singapore should
contact a "Hongkong and Shanghai Banking Corporation Limited, Singapore Branch" representative in respect of any matters arising from, or in
connection with this report. In Australia, this publication has been distributed by The Hongkong and Shanghai Banking Corporation Limited (ABN
65 117 925 970, AFSL 301737) for the general information of its “wholesale” customers (as defined in the Corporations Act 2001). Where
distributed to retail customers, this research is distributed by HSBC Bank Australia Limited (AFSL No. 232595). These respective entities make no
representations that the products or services mentioned in this document are available to persons in Australia or are necessarily suitable for any
particular person or appropriate in accordance with local law. No consideration has been given to the particular investment objectives, financial
situation or particular needs of any recipient. This publication is distributed in New Zealand by The Hongkong and Shanghai Banking Corporation
Limited, New Zealand Branch.
In Japan, this publication has been distributed by HSBC Securities (Japan) Limited. In Korea, this publication is distributed by The Hongkong and
Shanghai Banking Corporation Limited, Seoul Securities Branch ("HBAP SLS") for the general information of professional investors specified in
Article 9 of the Financial Investment Services and Capital Markets Act (“FSCMA”). This publication is not a prospectus as defined in the FSCMA. It
may not be further distributed in whole or in part for any purpose. HBAP SLS is regulated by the Financial Services Commission and the Financial
Supervisory Service of Korea. In Hong Kong, this document has been distributed by The Hongkong and Shanghai Banking Corporation Limited in
the conduct of its Hong Kong regulated business for the information of its institutional and professional customers; it is not intended for and should
not be distributed to retail customers in Hong Kong. The Hongkong and Shanghai Banking Corporation Limited makes no representations that the
products or services mentioned in this document are available to persons in Hong Kong or are necessarily suitable for any particular person or
appropriate in accordance with local law. All inquiries by such recipients must be directed to The Hongkong and Shanghai Banking Corporation
Limited. It may not be further distributed in whole or in part for any purpose.
© Copyright. The Hongkong and Shanghai Banking Corporation Limited, Seoul Securities Branch 2011, ALL RIGHTS RESERVED. No part of this
publication may be reproduced, stored in a retrieval system, or transmitted, on any form or by any means, electronic, mechanical, photocopying,
recording, or otherwise, without the prior written permission of The Hongkong and Shanghai Banking Corporation Limited, Seoul Securities Branch
MICA (P) 142/06/2010 and MICA (P) 193/04/2010

Page 28

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Global
Stephen Howard
Analyst, Global Sector Head
+44 20 7991 6820 [email protected]

Europe
Dominik Klarmann, CFA
Analyst
+49 211 910 2769 [email protected]

Nicolas Cote-Colisson
Analyst
+44 20 7991 6826 [email protected]

Luigi Minerva
Analyst
+44 20 7991 6928 [email protected]

Antonin Baudry
+33 1 56 52 43 25 [email protected]

Manish Beria, CFA
Analyst
+91 80 3001 3796 [email protected]

Amit Sachdeva
Analyst
+91 80 3001 3795 [email protected]

Dhiraj Saraf, CFA
Analyst
+91 80 3001 3773 [email protected]

Sunil Rajgopal
Analyst
+91 80 3001 3794 [email protected]

Americas
Richard Dineen
Analyst
+1 212 525 6707 [email protected]

Sean Glickenhaus
Analyst
+1 212 525 4131 [email protected]

Anthony McCutcheon
Credit Strategist
+1 212 525 4198 [email protected]

Keith Kitagawa
Credit Strategist
+1 212 525 5160 [email protected]

Enrique Gomez-Tagle
Media
+52 55 5721 2167 [email protected]

Global Emerging Markets (GEMs)
Hervé Drouet
Analyst
+44 20 7991 6827 [email protected]

Emerging Europe, Middle East & Africa (EMEA)
Kunal Bajaj
Analyst
+971 4 507 7200 [email protected]

Vangelis Karanikas
Analyst
+30 210 696 5211 [email protected]

Avshalom Shimei
Analyst
+972 3 710 1197 [email protected]

Bülent Yurdagül
Analyst
+90 212 376 46 12 [email protected]

Specialist Sales

Timothy Maunder-Taylor
+44 20 7991 5006 [email protected]

Thomas Koenen
+49 211 910 4402 [email protected]

Myles McMahon
+852 2822 4676 [email protected]

Asia
Steven C Pelayo
Analyst
+852 2822 4391 [email protected]

Tse-yong Yao
Analyst
+852 2822 4397 [email protected]

Nam Park
Analyst
+852 2996 6591 [email protected]

Carolyn Poon
Analyst
+852 2996 6586 [email protected]

Tucker Grinnan
Analyst
+852 2822 4686 [email protected]

Neale Anderson
Analyst
+852 2996 6716 [email protected]

Henry Lee
Associate
+813 5203 4412 [email protected]

Shishir Singh
Analyst
+852 2822 4292 [email protected]

Jenny Lai
Head of Research, Taiwan
+8862 8725 6020 [email protected]

Frank Su
Analyst
+8862 8725 6025 [email protected]

Jerry Tsai
Analyst
+8862 8725 6023 [email protected]

Percy Panthaki
Analyst
+91 22 2268 1240 [email protected]

Rajiv Sharma
Analyst
+91 22 2268 1239 [email protected]

Yogesh Aggarwal
Analyst
+91 22 2268 1246 [email protected]

Anil Kumar T
Analyst
+91 80 3001 3749 [email protected]

Yolanda Wang
Analyst
+8862 8725 6027 [email protected]

Carrie Liu
Analyst
+8862 8725 6024 carriecfliu @hsbc.com.tw

Brian Sohn
Analyst
+822 3706 8765 [email protected]

Howon Rim
Analyst
+822 37068767 [email protected]

Luis Hilado
Analyst
+65 6239 0656 [email protected]

Hui Dong
Analyst
+852 2822 4202 [email protected]

Joyce Chen
Associate
+8862 8725 6022 [email protected]

Soyun Shin
Associate Analyst
+822 3706 8774 [email protected]

Global Telecoms, Media & Technology
Research Team

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