abc 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 19 th , 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 2011e 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
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abcGlobal 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.
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) 970Free float (%) 100Market cap (USDm) 1,429Market cap (KRWb) 1,599
Cheil Omnicom Interpublic Publicis Dentsu Havas Worldwide Group Group Cos Inc Groupe SA Inc SA
Country Korea US US France Japan France Revenue* 11f 625 13,175.9 6,764.6 7,406.7 1,924 2,109.7 12f 718 13,804.2 7,086.9 7,782.8 1,997 2,190.4 13f 772 13,896.5 7,222.5 7,823.4 2,040 2,233.1 Operating profit* 11f 58 1,640.3 663.8 1,185.0 42 283.7 12f 75 1,784.8 765.1 1,289.5 49 303.9 13f 78 NA 792.0 1,381.6 54 343.0 Operating margin 11f 9.3 12.4 9.8 16.0 2.2 13.4 12f 10.5 12.9 10.8 16.6 2.5 13.9 13f 10.1 NA 11.0 17.7 2.6 15.4 OP growth 11f 3.9 12.5 20.8 10.3 -23.1 7.8 12f 29.6 8.8 15.3 8.8 16.6 7.1 13f 3.5 NA 19.3 16.6 9.1 20.9 Net profit* 11f 97 914.1 314.4 785.6 613 180.6 12f 120 1,005.8 383.4 864.1 711 196.4 13f 132 NA NA 843.4 746 224.7 PE 11f 16.2 15.6 20.8 14.2 17.3 12.2 (x) 12f 13.2 13.3 16.8 12.9 21.1 11.2 13f 11.9 12.0 NA 11.9 19.3 19.5 PB 11f 2.3 3.2 2.0 2.2 1.1 1.3 (x) 12f 2.1 3.0 1.9 1.9 1.1 1.2 13f 1.9 NA NA NA 1.1ROE 11f 14.2 22.3 13.1 17.8 6.6 10.9 (%) 12f 15.9 24.6 15.1 17.4 5.7 10.9 13f 15.9 NA NA NA 6.2 NAEPS* 11f 846 3.2 0.6 3.5 0.0 0.4 12f 1,040 3.7 0.8 3.9 1.3 0.5 13f 1,150 3.9 NA NA 1.4 0.3 BPS* 11f 6,222 13.9 5.6 22.7 22.3 4.0 12f 6,882 15.1 6.0 25.0 23.7 4.2 13f 7,612 NA NA NA 24.4 NA
Source: Bloomberg, HSBC estimates * Note: Except for EPS and BPS, figures in KRWbn for CWW and USDm for other companies. EPS and BPS in KRW for CWW and USD for other companies.
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Introduction We believe CWW, Korea’s largest advertising
CPU 600MHz 800MHz 600MHz 800MHz ARM11 1GHz ARM Cortex
Dual-core 1GHz ARM
1GHz dual core Intel Atom 1.66 GHz
Source: SEC, HSBC
Major shareholders Dividend trend
0%
5%
10%
15%
20%
Samsung
affiliates
Korea
ITMC
MSIM Matthew s Shroders
0
100
200
300
400
500
'04 '05 '06 '07 '08 '09 '10 '11e '12e '13e
0%
10%
20%
30%
40%
50%
DPS (LHS) Pay out ratio (RHS)
Source: Company data Source: Company data, HSBC
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Disclosure appendix Analyst Certification The following analyst(s), economist(s), and/or strategist(s) who is(are) primarily responsible for this report, certifies(y) that the opinion(s) on the subject security(ies) or issuer(s) and/or any other views or forecasts expressed herein accurately reflect their personal view(s) and that no part of their compensation was, is or will be directly or indirectly related to the specific recommendation(s) or views contained in this research report: Howon Rim and Nam Park
Important disclosures
Stock ratings and basis for financial analysis HSBC believes that investors utilise various disciplines and investment horizons when making investment decisions, which depend largely on individual circumstances such as the investor's existing holdings, risk tolerance and other considerations. Given these differences, HSBC has two principal aims in its equity research: 1) to identify long-term investment opportunities based on particular themes or ideas that may affect the future earnings or cash flows of companies on a 12 month time horizon; and 2) from time to time to identify short-term investment opportunities that are derived from fundamental, quantitative, technical or event-driven techniques on a 0-3 month time horizon and which may differ from our long-term investment rating. HSBC has assigned ratings for its long-term investment opportunities as described below.
This report addresses only the long-term investment opportunities of the companies referred to in the report. As and when HSBC publishes a short-term trading idea the stocks to which these relate are identified on the website at www.hsbcnet.com/research. Details of these short-term investment opportunities can be found under the Reports section of this website.
HSBC believes an investor's decision to buy or sell a stock should depend on individual circumstances such as the investor's existing holdings and other considerations. Different securities firms use a variety of ratings terms as well as different rating systems to describe their recommendations. Investors should carefully read the definitions of the ratings used in each research report. In addition, because research reports contain more complete information concerning the analysts' views, investors should carefully read the entire research report and should not infer its contents from the rating. In any case, ratings should not be used or relied on in isolation as investment advice.
Rating definitions for long-term investment opportunities
Stock ratings HSBC assigns ratings to its stocks in this sector on the following basis:
For each stock we set a required rate of return calculated from the cost of equity for that stock’s domestic or, as appropriate, regional market established by our strategy team. The price target for a stock represents the value the analyst expects the stock to reach over our performance horizon. The performance horizon is 12 months. For a stock to be classified as Overweight, the implied return must exceed the required return by at least 5 percentage points over the next 12 months (or 10 percentage points for a stock classified as Volatile*). For a stock to be classified as Underweight, the stock must be expected to underperform its required return by at least 5 percentage points over the next 12 months (or 10 percentage points for a stock classified as Volatile*). Stocks between these bands are classified as Neutral.
Our ratings are re-calibrated against these bands at the time of any 'material change' (initiation of coverage, change of volatility status or change in price target). Notwithstanding this, and although ratings are subject to ongoing management review, expected returns will be permitted to move outside the bands as a result of normal share price fluctuations without necessarily triggering a rating change.
*A stock will be classified as volatile if its historical volatility has exceeded 40%, if the stock has been listed for less than 12 months (unless it is in an industry or sector where volatility is low) or if the analyst expects significant volatility. However,
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stocks which we do not consider volatile may in fact also behave in such a way. Historical volatility is defined as the past month's average of the daily 365-day moving average volatilities. In order to avoid misleadingly frequent changes in rating, however, volatility has to move 2.5 percentage points past the 40% benchmark in either direction for a stock's status to change.
Rating distribution for long-term investment opportunities
As of 25 March 2011, the distribution of all ratings published is as follows: Overweight (Buy) 51% (23% of these provided with Investment Banking Services)
Neutral (Hold) 36% (21% of these provided with Investment Banking Services)
Underweight (Sell) 13% (19% of these provided with Investment Banking Services)
Share price and rating changes for long-term investment opportunities
Samsung Electronics (005930.KS) Share Price performance KRW Vs HSBC
rating history
Source: HSBC
Recommendation & price target history
From To Date
N/R Overweight (V) 17 June 2009 Overweight (V) Overweight 29 January 2010 Target Price Value Date
Price 1 800000.00 17 June 2009 Price 2 940000.00 30 July 2009 Price 3 1021000.00 05 October 2009 Price 4 1139000.00 23 March 2010
1 HSBC* has managed or co-managed a public offering of securities for this company within the past 12 months. 2 HSBC expects to receive or intends to seek compensation for investment banking services from this company in the next
3 months. 3 At the time of publication of this report, HSBC Securities (USA) Inc. is a Market Maker in securities issued by this
company. 4 As of 28 February 2011 HSBC beneficially owned 1% or more of a class of common equity securities of this company. 5 As of 31 January 2011, this company was a client of HSBC or had during the preceding 12 month period been a client of
and/or paid compensation to HSBC in respect of investment banking services. 6 As of 31 January 2011, this company was a client of HSBC or had during the preceding 12 month period been a client of
and/or paid compensation to HSBC in respect of non-investment banking-securities related services. 7 As of 31 January 2011, this company was a client of HSBC or had during the preceding 12 month period been a client of
and/or paid compensation to HSBC in respect of non-securities services. 8 A covering analyst/s has received compensation from this company in the past 12 months. 9 A covering analyst/s or a member of his/her household has a financial interest in the securities of this company, as
detailed below. 10 A covering analyst/s or a member of his/her household is an officer, director or supervisory board member of this
company, as detailed below. 11 At the time of publication of this report, HSBC is a non-US Market Maker in securities issued by this company and/or in
securities in respect of this company Analysts, economists, and strategists are paid in part by reference to the profitability of HSBC which includes investment banking revenues.
For disclosures in respect of any company mentioned in this report, please see the most recently published report on that company available at www.hsbcnet.com/research.
* HSBC Legal Entities are listed in the Disclaimer below.
Additional disclosures 1 This report is dated as at 28 March 2011. 2 All market data included in this report are dated as at close 24 March 2011, unless otherwise indicated in the report. 3 HSBC has procedures in place to identify and manage any potential conflicts of interest that arise in connection with its
Research business. HSBC's analysts and its other staff who are involved in the preparation and dissemination of Research operate and have a management reporting line independent of HSBC's Investment Banking business. Information Barrier procedures are in place between the Investment Banking and Research businesses to ensure that any confidential and/or price sensitive information is handled in an appropriate manner.
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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