Professional Documents
Culture Documents
Media abc
Equity – Korea
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.
28 March 2011 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
Howon Rim*
Analyst win a bigger share of SEC’s growing global ad spend for smartphones, tablet PCs and
The Hongkong and Shanghai Banking smart TVs. CWW has a high correlation with SEC shares (R-square of 0.82).
Corporation Limited, Seoul Securities
Branch Deregulation. CWW’s terrestrial ad market share (15.7%) and commission rate (10.6% vs.
+822 3706 8767
industry average 11%) are artificially capped by Korea Broadcast Advertising Corp
howonrim@kr.hsbc.com
(KOBACO). This may soon change as a bill that will ease these restrictions may be passed
View HSBC Global Research at:
http://www.research.hsbc.com later this year. We forecast stable domestic ad market growth (+2.4% y-o-y) based on a high
*Employed by a non-US affiliate of correlation with GDP, and HSBC’s forecast of nearly 5% GDP growth in 2011-12e.
HSBC Securities (USA) Inc, and is not
registered/qualified pursuant to FINRA Valuation. Our target PE of 19x 2011e EPS is CWW’s four-year average historical high,
regulations
which we think is reasonable based on: 1) stronger overseas growth; 2) the relationship
Issuer of The Hongkong and
report: Shanghai Banking with SEC; 3) domestic deregulation. Key catalysts are overseas acquisition
Corporation Limited, Seoul
Securities Branch announcements, news on deregulation, rising competition in the global consumer
electronics market. Key risks are a high level of dependency on SEC, weaker
Disclaimer & domestic/global economy, delay in deregulation and significant KRW appreciation.
Disclosures
This report must be read
with the disclosures and
the analyst certifications in Index^ KOSPI INDEX Enterprise value (KRWb) 970
the Disclosure appendix, Index level 2,037 Free float (%) 100
RIC 030000.KS Market cap (USDm) 1,429
and with the Disclaimer, Bloomberg 030000 KS Market cap (KRWb) 1,599
which forms part of it Source: HSBC Source: HSBC
Cheil Worldwide (030000)
Media abc
28 March 2011
2
Cheil Worldwide (030000)
Media abc
28 March 2011
3
Cheil Worldwide (030000)
Media abc
28 March 2011
Investment summary
Structural improvements underway – growing overseas exposure
and stronger domestic presence from deregulation
Captive demand underpins stable operations; potential growth
from SEC’s higher marketing spend for handsets and new devices
Initiate with OW and TP of KRW17,000 based on 19x 2011e EPS,
the stock’s four-year average historical high
(KRW)
Anticipation of Beijing Oly mpics in 2008 Anticipation of economic recov ery 26x Further deregulation, higher
17,000 21x
and stronger earnings grow th from 2Q07 ad spend by SEC, and
15,000 ov erseas ex pansion
Anticipation on domestic consumption 16x
13,000 recov ery , sports ev ents in 2006, launch
11,000 of priv ate media representativ es
11x
9,000
7,000
Progress in deregulation as KCC
5,000 announces new broadcasting channels
Dim economic outlook from global financial crisis
3,000
Jan 02 Jan 03 Jan 04 Jan 05 Jan 06 Jan 07 Jan 08 Jan 09 Jan 10 Jan 11 Jan 12
4
Cheil Worldwide (030000)
Media abc
28 March 2011
Source: HSBC
In 2008, the Constitutional Court of Korea ruled We think the bill may be passed later this year
that the monopoly held by Korea Broadcast because new broadcasting companies sanctioned
Advertising Corp (KOBACO) is a violation of the by the KCC (Korea Communications
constitution. As a result, the government wants to Commission) in December 2010 are preparing to
allow private sector media representatives into the launch services in 4Q 2011.
terrestrial advertising market to compete with
If the bill is not passed, the three existing
KOBACO. The related bill is pending approval by
terrestrial broadcasters (KBS, MBC, SBS) are
the National Assembly.
likely to lose terrestrial advertising market share
We believe the passing of the bill should benefit as the current restrictions imposed by KOBACO
CWW in the following four ways: would weaken their competitiveness against the
new broadcasting companies. As such, we think
Advertising price: average pricing is likely to
there will be significant pressure on the
rise as it would be determined by competition
government to pass the bill near the launch of new
between advertisers based on the actual level
broadcasting companies, which we expect to
of demand rather than by KOBACO.
happen around 4Q this year.
Market share: CWW’s terrestrial ad market
share (15.7% as of the end of 2010) should
rise as it is in effect limited by KOBACO.
5
Cheil Worldwide (030000)
Media abc
28 March 2011
Global marketer ranking in 2009 Korea domestic ad market – structural slowdown in growth
2009 Sales (KRW tr)
(USD bn)
Slow er
Ranking Marketer
10 grow th
1 WPP 13.60
2 Omnicom 11.72 8
3 Publicis 6.29 Strong
6
4 Interpublic 6.03 grow th
5 Dentsu 3.11 4
6 Aegis 2.11
2
7 Havas 2.01
0
19 Cheil Worldwide 0.31
1975 1980 1985 1990 1995 2000 2005 2010
Korea terrestrial advertising – commission rates and market growth. We think the overseas acquisition strategy
share, 2010
is positive as this would give CWW immediate
% Commission rate Market share
access to an established client base. We think
Cheil Worldwide 10.6 15.7
Inotion 10.6 10.3
CWW’s cash and equivalents, which we estimate
HS Ad 10.7 7.0 at around KRW440bn, are sufficient to fund
SK M&C 10.4 5.1
Daehong 11.4 4.5 acquisitions. In 2009, CWW acquired three
Welcomm 11.2 2.9
Phoenix 10.8 2.7
overseas entities, with each transaction amounting
JWU 11.3 2.5 to cKRW25bn. CWW says it is currently viewing
Hancomm 11.4 2.3
Alchemedia 11.3 2.0 two or more acquisition targets in the US and
Source: KOBACO China which the company may acquire as early as
this year.
Global expansion
We expect CWW’s focus on overseas growth to
CWW is the 19th largest advertiser in the world in result in a 15% CAGR in its overseas billings
terms of sales (as of 2009) and has ambitions to during 2011-13e. This should raise both the
be ranked within the global top 10 by 2012. company’s top line (from increase in parent-level
overseas billings) and equity-method gains from
We like the company’s strategic decision to focus
an increase in overseas subsidiaries’ billings
on overseas markets as domestic ad market
(based on K-GAAP).
growth is structurally slowing down.
6
Cheil Worldwide (030000)
Media abc
28 March 2011
Cheil Worldwide ownership structure SEC’s marketing expense vs. CWW’s billings
CWW: Overseas expansion resumed from 2010 CWW: Overseas billings to increase
40 Office Ov erseas
Branch 3,000 Ov erseas as % of total billing 70%
30 Firm 2,500
65%
2,000
20
1,500 60%
1,000
10 55%
500
0 - 50%
'98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '05 '06 '07 '08 '09 '10 '11e '12e '13e
7
Cheil Worldwide (030000)
Media abc
28 March 2011
8
Cheil Worldwide (030000)
Media abc
28 March 2011
9
Cheil Worldwide (030000)
Media abc
28 March 2011
PE bands PB bands
16x 2.2x
13,000 13,000
11x 1.5x
8,000 8,000
3,000 3,000
Jan 02 Jan 04 Jan 06 Jan 08 Jan 10 Jan 12 Jan 02 Jan 04 Jan 06 Jan 08 Jan 10 Jan 12
Source: Company data, Quantiwise, HSBC estimates Source: Company data, Quantiwise, HSBC estimates
10
Cheil Worldwide (030000)
Media abc
28 March 2011
CWW ready to return to its with GDP is 0.76). GDP expected to grow 4.9%
historical high PE ratio and 4.8% in 2011e and 2012e, respectively,
according to HSBC forecasts.
Our target price of KRW17,000 for CWW shares
is based on 19x 2011e EPS, which is near the CWW is trading below the global peer average in
four-year average historical high. We believe this terms of PE multiple. We believe this is due to its
is justified given the company’s stronger overseas weaker presence in the overseas ad market.
growth outlook, greater share of SEC’s increasing However, we think this should change as we
ad spend, and anticipated benefits from expect CWW’s overseas exposure to increase on
deregulation in the domestic market on top of the back of both acquisitions and organic growth.
stable growth of domestic ad market (R-square
(KRW)
Anticipation of Beijing Oly mpics in 2008 Anticipation of economic recov ery 26x Further deregulation, higher
17,000 21x
and stronger earnings grow th from 2Q07 ad spend by SEC, and
15,000 ov erseas ex pansion
Anticipation on domestic consumption 16x
13,000 recov ery , sports ev ents in 2006, launch
11,000 of priv ate media representativ es
11x
9,000
7,000
Progress in deregulation as KCC
5,000 announces new broadcasting channels
Dim economic outlook from global financial crisis
3,000
Jan 02 Jan 03 Jan 04 Jan 05 Jan 06 Jan 07 Jan 08 Jan 09 Jan 10 Jan 11 Jan 12
11
Cheil Worldwide (030000)
Media abc
28 March 2011
CWW is also increasing its client base to reduce operating margins, led by its richer product mix,
its reliance on SEC. CWW’s stronger overseas improving cost structure and conglomerate nature.
presence should help gain a bigger share of SEC’s He also notes that telecoms and digital media
ad spend and also help the company to add more margin expansion should help offset declines in
overseas advertisers and help lessen its semiconductors and LCDs.
dependency on overseas billings on SEC, which
High correlation between CWW and SEC share performance
we estimate at 85%.
350
Our target price of KRW17,000 implies 26% R 2 = 0.8165
300
potential return. Under HSBC’s research model,
250
the Neutral band for non-volatile Korean stocks is
200
5-15%; we therefore initiate coverage of CWW
with an Overweight rating. 150
100
High correlation with SEC
50
There is a high correlation between the share price 50 100 150 200 250 300
performance of CWW and SEC. R-square
Source: Quantiwise, HSBC
between the two is 0.82 (2002-present).
HSBC analyst Nam Park has an Overweight Given CWW’s high correlation with SEC, we
rating on SEC with a target price of believe the positive share trend outlook of SEC
KRW1,139,000, which implies 25% potential has positive implications for CWW share trend
return from the current share price (KRW910,000 going forward.
as of 25 March 2011).
350
CWW
300 SEC
250 KOSPI
200
150
100
50
0
Jan 02 Jan 03 Jan 04 Jan 05 Jan 06 Jan 07 Jan 08 Jan 09 Jan 10 Jan 11
12
Cheil Worldwide (030000)
Media abc
28 March 2011
Downside risks to our call increase its commission rate and terrestrial ad
market share.
Weaker-than-expected domestic/global
economic conditions: As marketing spend is Heightening competition in the global
highly correlated with overall economic consumer electronics market: Growing
conditions, weaker-than-expected economic competition in the global consumer
conditions in Korea or globally could present electronics market, including smartphones,
downside risk to our earnings estimates. tablet PCs and smart TVs, should lead to
greater ad spend by SEC.
Delay in easing of regulation: There is rising
anticipation of further deregulation in the Samsung Electronics
terrestrial advertising market. If the extent of
Valuation
deregulation is milder or there is further delay
in introduction of private media To value Samsung Electronics, we use an average
representatives (which we expect may happen of PB (2.2x target multiple, rolled over to 2011e
later later), this could weigh on the shares. from 2010e), sum-of-the-parts and DCF
Our 2012e EPS forecast declines by 12.5% if valuations (methodology unchanged, i.e. 12%
the bill to allow private media representatives WACC with risk-free rate 4%, equity risk
is delayed to 2H 2012 from our current premium 8%, and β of 1) to derive a 12-month
expectation of 2H 2011. target price of KRW1,139,000 (unchanged).
13
Cheil Worldwide (030000)
Media abc
28 March 2011
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
(KRW bn) OP
Ov erseas Equity method gain
3,000 Ov erseas as % of total billing 70% 100 200%
Equity method gain as % of OP
2,500
65% 80
150%
2,000
60
1,500 60% 100%
40
1,000
55% 50%
500 20
- 50% 0 0%
'05 '06 '07 '08 '09 '10 '11e '12e '13e '06 '07 '08 '09 '10 '11e '12e '13e
14
Cheil Worldwide (030000)
Media abc
28 March 2011
However, from 2010, CWW started expanding SEC plans to focus more on increasingly popular
overseas again through organic growth, as seen high-end TVs such as LED, 3D, and smart TVs in
from the rebound in number of 2011. Specifically, for LED TVs, SEC expects its
overseas subsidiaries. portion to increase among LCD TVs from 20% in
2010 to 51% in 2011.
We expect overseas billings to rise at a CAGR of
23% during 2011-13e. This should translate into We expect SEC’s marketing expense as a
greater overseas revenue and increase in net percentage of total sales to increase from 5.0% in
equity gain going forward. Specifically, we expect 2010 to 5.3% in 2011, implying a 15% y-o-y
net equity method gain of CWW to have a CAGR increase in SEC’s marketing budget in 2011e.
of 29% during 2011-13e.
Opportunity from deregulation
Increasing ad spend by SEC in terrestrial advertising
We estimate SEC’s ad spending to account for We expect CWW to benefit from the deregulation
80% of CWW’s consolidated billings. As a result, of the terrestrial ad market in Korea. Due to the
there is a high correlation between SEC’s ad anticipated launch of new broadcasting companies
spending and CWW’s consolidated billings. around 4Q this year, and possible legislation to
We expect the strong market growth of new allow private media representatives, we think
electronic devices such as smartphones, tablet PCs, CWW may be able to increase its market share
and smart TVs, amid intensifying competition, and commission rate for terrestrial ads, which is in
should lead to increased ad spending by SEC. effect currently limited by KOBACO.
Specifically, SEC plans to launch a full line-up of As a result, we expect CWW to increase its
smartphones (from high end handsets to mass market share in the overall domestic ad market to
targeted handsets) in 2011 and also build a 14.7% by 2013 from 12.8% in 2010.
diversified tablet PC line-up during the year.
Sensitivity analysis
Through these efforts, SEC aims to achieve more
than 100% growth in smartphone shipments in As the new broadcasting companies are preparing
2011 and exceed overall market growth of more to launch their services from 4Q 2011, we believe
than 40%, which should lead to continued growth there is a high chance that the government may
in global handset market share. allow the entry of private media representatives
SEC’s marketing spending vs. CWW’s billings Domestic market share to increase from deregulation
15
Cheil Worldwide (030000)
Media abc
28 March 2011
16
Cheil Worldwide (030000)
Media abc
28 March 2011
Balance Sheet
Balance Sheet Profit and Loss
Year to Dec (W bn) 2010 2011E 2012E 2013E 2014E Year to Dec (W bn) 2010 2011E 2012E 2013E 2014E
Total Assets 1,120.2 1,183.7 1,298.1 1,406.5 1,502.0 Net Sales 614.6 624.8 717.9 772.3 780.0
Current Assets 842.0 872.8 941.4 1,000.7 1,046.5 Growth (%) 13.8 1.7 14.9 7.6 1.0
Cash & Cash Equivalents 29.3 40.7 87.6 117.3 154.2 Export ratio (%) 0.0 0.0 0.0 0.0 0.0
St. Investment Assets 410.5 414.6 418.8 422.9 427.2 Cost of Sales 402.6 399.0 459.5 496.0 500.9
Accounts Receivable 275.8 289.6 304.1 327.1 330.4 Growth (%) 12.4 (0.9) 15.2 7.9 1.0
Inventory 0.0 0.0 0.0 0.0 0.0 Gross Profit 212.0 225.9 258.4 276.3 279.1
Others 126.5 127.8 131.1 133.4 134.8 Gross Margin(%) 34.5 36.1 36.0 35.8 35.8
Non-current Assets 278.2 310.9 356.6 405.8 455.5 SG&A Expenses 156.2 167.8 183.1 198.5 166.2
Investment Assets 193.1 225.9 271.5 320.7 370.3 Growth (%) 16.0 7.4 9.2 8.4 (16.2)
Tangible Assets 64.7 64.5 64.3 64.2 64.1 Operating Profit 55.8 58.1 75.2 77.9 112.9
Intangible Assets 0.1 0.1 0.1 0.0 0.0 Growth (%) 17.7 4.0 29.6 3.5 45.0
Total Liabilities 464.6 467.9 506.3 530.9 528.9 Operating Margin(%) 9.1 9.3 10.5 10.1 14.5
Current Liabilities 430.8 436.8 476.9 508.1 510.9 Non-Operating Inc (Exp) 77.9 60.6 70.7 83.4 67.7
Accounts Payable 253.2 257.4 295.7 318.1 321.3 Interest Income 16.4 8.6 9.3 10.1 10.8
St. Debt 1.1 1.2 1.2 1.2 1.2 Interest Expenses 0.4 0.1 (0.0) (0.1) (0.2)
Current Portion of Lt. Debt 0.0 0.0 0.0 7.0 5.0 Net F/X (0.5) 2.4 5.2 5.2 5.2
Others 176.5 178.3 180.0 181.8 183.4 Net Asset Disposal 29.0 0.0 0.0 0.0 0.0
Non-current Liabilities 33.8 31.1 29.4 22.7 18.0 Net Equity Method 31.7 32.8 45.7 49.2 49.6
Bonds 0.0 0.0 0.0 0.0 0.0 Net Other non-Op 1.8 16.9 10.5 18.9 1.8
Lt. Debt 2.3 (0.7) (2.7) (9.7) (14.7) Pre-tax Profit from Cont. Op 133.8 118.6 145.9 161.3 180.6
Others 31.5 31.8 32.1 32.4 32.7 Income Taxes 28.8 21.4 26.3 29.0 32.5
Total Stockholders Equity 655.6 715.8 791.7 875.7 973.1 Profit from Cont. Op 105.0 97.3 119.6 132.3 148.1
Paid-in Capital 23.0 23.0 23.0 23.0 23.0 Profit from Discont. Op 0.0 0.0 0.0 0.0 0.0
Capital Surplus 112.9 112.9 112.9 112.9 112.9 Net Profit 105.0 97.3 119.6 132.3 148.1
Capital Adjustment (31.4) (31.4) (31.4) (31.4) (31.4) Growth (%) 15.3 (7.3) 23.0 10.6 12.0
Other Accumulated Earnings 28.4 28.4 28.4 28.4 28.4 Net Margin(%) 17.1 15.6 16.7 17.1 19.0
Retained Earnings 522.6 582.8 658.7 742.7 840.1 EBITDA 62.8 65.2 82.4 85.1 120.1
Total Debt 3.5 0.5 (1.5) (1.5) (8.5) Growth (%) 13.9 3.8 26.4 3.2 41.2
Net Debt(Cash) (436.3) (454.9) (507.8) (541.7) (589.9) Dividend Payout (%) 35.4 44.9 40.4 38.3 34.2
Source: Company data, HSBC
Cash Flow
Cash Flow Key Ratios
Year to Dec (W bn) 2010 2011E 2012E 2013E 2014E Year to Dec 2010 2011E 2012E 2013E 2014E
Cash Flows from Operating 23.3 62.5 103.6 89.2 105.8 EPS (won) 913 846 1,040 1,150 1,287
Net Profit 105.0 97.3 119.6 132.3 148.1 Adj. EPS (won) 660 845 1,040 1,149 1,287
Depreciation 7.0 7.1 7.2 7.2 7.2 BPS (won) 5,699 6,222 6,882 7,612 8,459
Amortization 0.0 0.0 0.0 0.0 0.0 DPS (won) 340 380 420 440 440
Equity Method Loss(Gain) (31.7) (32.8) (45.7) (49.2) (49.6) PER (x) 15.7 16.9 13.8 12.4 11.1
Investment Asset Disp Loss(Gain) (29.0) 0.0 0.0 0.0 0.0 Adj. PER (x) 21.7 16.9 13.8 12.4 11.1
Tangible Asset Disp Loss(Gain) (0.0) (0.0) (0.0) (0.0) (0.0) PBR (x) 2.5 2.3 2.1 1.9 1.7
Changes in Working Capital (51.3) (12.6) 21.3 (2.9) (2.0) PCR (x) 22.0 21.9 20.0 17.9 15.3
Others 23.3 3.5 1.2 1.7 2.2 EV/ EBITDA (x) 19.2 18.2 13.8 13.0 8.8
Cash Flows from Investing (13.2) (10.9) (11.0) (11.1) (11.3) PEG (x) 2.0 1.1 na na na
St. Investment Assets Dec.(Inc.) (119.7) (4.1) (4.1) (4.2) (4.2) Dividend Yield (%) 2.4 2.7 2.9 3.1 3.1
Investment Securities Dec.(Inc.) 115.7 0.0 0.0 0.0 0.0 Profitability
Tangible Assets Dec.(Inc.) (6.8) (6.8) (6.9) (7.0) (7.0) Operating Margin (%) 9.1 9.3 10.5 10.1 14.5
Others (2.4) 0.0 0.0 0.0 0.0 EBITDA Margin (%) 10.2 10.4 11.5 11.0 15.4
Free Cash Flow 10.2 51.6 92.5 78.0 94.6 Pre-tax Profit Margin(%) 21.8 19.0 20.3 20.9 23.2
Cash Flows from Financing (37.3) (40.1) (45.7) (48.3) (57.6) Net Margin (%) 17.1 15.6 16.7 17.1 19.0
St. Debt Inc.(Dec.) (1.0) 0.0 0.0 0.0 0.0 ROA (%) 9.8 8.4 9.6 9.8 10.2
Cur. Por. of Lt. Debt Inc.(Dec.) 0.0 0.0 0.0 7.0 (2.0) ROE (%) 17.2 14.2 15.9 15.9 16.0
Bonds Inc.(Dec.) 0.0 0.0 0.0 0.0 0.0 ROIC (%) 125.2 76.5 110.9 141.7 202.7
Lt. Debt Inc.(Dec.) 0.0 (3.0) (2.0) (7.0) (5.0) Stability
Share Capital Inc.(Dec.) 0.0 0.0 0.0 0.0 0.0 Debt Ratio (%) 70.9 65.4 64.0 60.6 54.4
Dividend Paid (37.1) (37.1) (43.7) (48.3) (50.6) Net Debt Ratio (%) (66.5) (63.5) (64.1) (61.9) (60.6)
Others 0.8 0.0 0.0 0.0 0.0 Interest Coverage (x) 144.3 608.4 na na na
Change in Cash (27.2) 11.5 46.8 29.7 37.0 Activity
Beginning Cash 56.4 29.3 40.7 87.6 117.3 Asset Turnover (x) 0.6 0.5 0.6 0.6 0.5
Ending Cash 29.3 40.7 87.6 117.3 154.2 Receivables Turnover (x) 1.7 1.6 1.7 1.8 1.8
Capex/ Sales (%) 1.1 1.1 1.0 0.9 0.9 Inventory Turnover (x) 0.0 0.0 0.0 0.0 0.0
Depreciation/ Sales (%) 1.1 1.1 1.0 0.9 0.9 Payables Turnover (x) 2.4 2.4 2.6 2.5 2.4
Depreciation/ Capex (%) 103.1 104.3 103.8 103.4 103.0 Working Capital Turnover (x) (12.4) (27.4) (24.4) (19.3) (19.7)
Source: Company data, HSBC estimates
17
Cheil Worldwide (030000)
Media abc
28 March 2011
Company analysis
No.1 ad company in Korea in terms of consolidated billings
Global expansion and deregulation in terrestrial advertising to be
the key share price drivers
Captive share of SEC’s increasing advertising spend provides
both stability and growth
Samsung
Ad agency Group
C&T
13% Cheil Worldwide Samsung
Innocean Hyundai Motor
Samsung HS Ad LG
18
Cheil Worldwide (030000)
Media abc
28 March 2011
20% Promotion
ad
15%
production
10% 41% TV radio
new spaper
5% magazine
0% 37%
Internet
Cable TV
TV and radio
Magazines
Newspapers
Cable TV
Internet
22%
CheilWW
(KRW Foreign net buy (%)
16.3% 600 Foreign ow nership 46
400 44
Inno cean
200 42
9.1%
0 40
SK M &C -200 38
Others 6%
57.6% -400 36
HS Ad
6.1% -600 34
Jan Mar May Jul Sep Nov Jan
Daeho ng
10 10 10 10 10 10 11
4.9%
19
Cheil Worldwide (030000)
Media abc
28 March 2011
40 Office Ov erseas
Branch 3,000 Ov erseas as % of total billing 70%
30 Firm 2,500
65%
2,000
20
1,500 60%
1,000
10 55%
500
0 - 50%
'98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '05 '06 '07 '08 '09 '10 '11e '12e '13e
20
Cheil Worldwide (030000)
Media abc
28 March 2011
Until now, KOBACO has decided/restricted In Japan, ad agencies also work as media
advertising prices, commission rates and representatives for terrestrial ads, and hence there
advertising slots. This distorted the terrestrial is no government entity like KOBACO. In this
advertising market and did not reflect underlying environment, the top player Dentsu accounts for
demand. With the entry of private media roughly 50% of market share. Furthermore, for
representatives, we believe terrestrial advertising prime time terrestrial ad slots, the top three ad
(which accounts for 23% of domestic agencies have around 80% time share.
advertisement market) will better reflect market
We think the main reason for the substantial
dynamics due to competition between media
terrestrial ad market share of leading ad agencies
representatives and benefit CWW:
is due to economies of scale. Major ad agencies
Advertising prices can buy ad slots in bulk given their strong
Advertising prices are likely to rise with the advertiser base. As a result, we think CWW can
introduction of private media representatives as receive a discount from terrestrial broadcasters
they will be based on competition between which can then be shared with advertisers. We
advertisers. We expect ad agencies, including think the introduction of private media reps will
CWW, to benefit from this. help CWW to attract more advertisers.
Source: HSBC
21
Cheil Worldwide (030000)
Media abc
28 March 2011
is below the industry average of 11% and 12-13% devices such as LCD TVs. As such, brand
for smaller players under the KOBACO perception and awareness are likely to play a
monopoly. Also, the introduction of private media bigger role.
representatives should result in competition
As a result, we expect SEC to increase its ad
between KOBACO and private media
spending going forward. Specifically, we expect
representatives, which in turn could lower their
SEC to increase marketing expense as a
portion of commissions (currently 2.8%) and raise
percentage of consolidated sales from 5.0% in
advertising agencies’ commission rates.
2010 to 5.3% in 2011e. This indicates a 15% y-o-
Ad production revenue y increase in SEC’s marketing expense in 2011e.
The resulting change should expand the market
Comparison of broadcasters
which should also lead to growth in the ad
Terrestrial New Cable TV
production market. broadcasters broadcasters operators
Service MBC, KBS, SBS Chosun Ilbo, C&M, HCN,
Although we admit that it is difficult to forecast the providers Joongang Ilbo, OnMedia, etc.
timing of the legislation to allow private media Donga Ilbo,
Maeil Economy
representatives, we think the pressure on the newspaper
Coverage Nationwide Nationwide Local
government should rise substantially near the end of Program variety General General Specialized
this year. This is because new broadcasting program program program
Capital High High Low
companies are currently preparing to launch their requirement
broadcasting services from 4Q 2011. Without the Commercial Not allowed Allowed Allowed
breaks
private media representatives, terrestrial Sponsorship Not allowed Allowed Allowed
advertising
broadcasting companies would be at a disadvantage
Source: HSBC
due to restrictions imposed by KOBACO.
22
Cheil Worldwide (030000)
Media abc
28 March 2011
5% 200 20%
100 10%
0%
Samsung Korea MSIM Matthew s Shroders 0 0%
affiliates ITMC '04 '05 '06 '07 '08 '09 '10 '11e '12e '13e
23
Cheil Worldwide (030000)
Media abc
28 March 2011
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.
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,
24
Cheil Worldwide (030000)
Media abc
28 March 2011
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.
402000
Mar-06
Sep-06
Mar-07
Sep-07
Mar-08
Sep-08
Mar-09
Sep-09
Mar-10
Sep-10
Mar-11
Source: HSBC
25
Cheil Worldwide (030000)
Media abc
28 March 2011
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.
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.
26
Cheil Worldwide (030000)
Media abc
28 March 2011
Disclaimer
* Legal entities as at 31 January 2010 Issuer of report
'UAE' HSBC Bank Middle East Limited, Dubai; 'HK' The Hongkong and Shanghai Banking The Hongkong and Shanghai Banking
Corporation Limited, Hong Kong; 'TW' HSBC Securities (Taiwan) Corporation Limited; 'CA' HSBC Corporation Limited, Seoul Securities
Securities (Canada) Inc, Toronto; HSBC Bank, Paris branch; HSBC France; 'DE' HSBC Trinkaus & Branch
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 7th Floor, HSBC Building
Egypt S.A.E., Cairo; 'CN' HSBC Investment Bank Asia Limited, Beijing Representative Office; The 25, 1-ka, Bongrae-dong
Hongkong and Shanghai Banking Corporation Limited, Singapore branch; The Hongkong and Chung-ku, Seoul 100-161, Korea
Shanghai Banking Corporation Limited, Seoul Securities Branch; The Hongkong and Shanghai Telephone: +822 3706 8700/3
Banking Corporation Limited, Seoul Branch; HSBC Securities (South Africa) (Pty) Ltd, Johannesburg;
Fax: +822 3706 8797
'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; Website: www.research.hsbc.com
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.
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
27
abc
Global Telecoms, Media & Technology
Research Team
Global Asia
Stephen Howard Steven C Pelayo
Analyst, Global Sector Head Analyst
+44 20 7991 6820 stephen.howard@hsbcib.com +852 2822 4391 stevenpelayo@hsbc.com.hk
Europe Tse-yong Yao
Dominik Klarmann, CFA Analyst
Analyst +852 2822 4397 tse-yongyao@hsbc.com.hk
+49 211 910 2769 dominik.klarmann@hsbc.de
Nam Park
Nicolas Cote-Colisson Analyst
Analyst +852 2996 6591 nampark@hsbc.com.hk
+44 20 7991 6826 nicolas.cote-colisson@hsbcib.com
Carolyn Poon
Luigi Minerva Analyst
Analyst +852 2996 6586 carolynpoon@hsbc.com.hk
+44 20 7991 6928 luigi.minerva@hsbcib.com
Tucker Grinnan
Antonin Baudry Analyst
+33 1 56 52 43 25 antonin.baudry@hsbc.com +852 2822 4686 tuckergrinnan@hsbc.com.hk
Manish Beria, CFA Neale Anderson
Analyst Analyst
+91 80 3001 3796 manishberia@hsbc.co.in +852 2996 6716 neale.anderson@hsbc.com.hk
Amit Sachdeva Henry Lee
Analyst Associate
+91 80 3001 3795 amit1sachdeva@hsbc.co.in +813 5203 4412 henry.lee@hsbc.co.jp
Dhiraj Saraf, CFA Shishir Singh
Analyst Analyst
+91 80 3001 3773 dhirajsaraf@hsbc.co.in +852 2822 4292 shishirkumarsingh@hsbc.com.hk
Sunil Rajgopal Jenny Lai
Analyst Head of Research, Taiwan
+91 80 3001 3794 sunilrajgopal@hsbc.co.in +8862 8725 6020 jennylai@hsbc.com.tw
Americas Frank Su
Richard Dineen Analyst
Analyst +8862 8725 6025 frankkssu@hsbc.com.tw
+1 212 525 6707 richard.dineen@us.hsbc.com
Jerry Tsai
Sean Glickenhaus Analyst
Analyst +8862 8725 6023 jerrycytsai@hsbc.com.tw
+1 212 525 4131 sean.x.glickenhaus@us.hsbc.com
Percy Panthaki
Anthony McCutcheon Analyst
Credit Strategist +91 22 2268 1240 percypanthaki@hsbc.co.in
+1 212 525 4198 anthony.c.mccutcheon@us.hsbc.com
Rajiv Sharma
Keith Kitagawa Analyst
Credit Strategist +91 22 2268 1239 rajivsharma@hsbc.co.in
+1 212 525 5160 keith.m.kitagawa@us.hsbc.com
Yogesh Aggarwal
Enrique Gomez-Tagle Analyst
Media +91 22 2268 1246 yogeshaggarwal@hsbc.co.in
+52 55 5721 2167 enrique.gomeztagle@hsbc.com.mx
Anil Kumar T
Global Emerging Markets (GEMs) Analyst
Hervé Drouet +91 80 3001 3749 anil.kumar.tulsiram@hsbc.co.in
Analyst
+44 20 7991 6827 herve.drouet@hsbcib.com Yolanda Wang
Analyst
Emerging Europe, Middle East & Africa (EMEA) +8862 8725 6027 yolandayywang@hsbc.com.tw
Kunal Bajaj
Analyst Carrie Liu
+971 4 507 7200 kunalbajaj@hsbc.com Analyst
+8862 8725 6024 carriecfliu @hsbc.com.tw
Vangelis Karanikas
Analyst Brian Sohn
+30 210 696 5211 vangelis.karanikas@hsbc.com Analyst
+822 3706 8765 briansohn@kr.hsbc.com
Avshalom Shimei
Analyst Howon Rim
+972 3 710 1197 avshalomshimei@hsbc.com Analyst
+822 37068767 howonrim@kr.hsbc.com
Bülent Yurdagül
Analyst Luis Hilado
+90 212 376 46 12 bulentyurdagul@hsbc.com.tr Analyst
+65 6239 0656 luishilado@hsbc.com.sg
Specialist Sales Hui Dong
Analyst
Timothy Maunder-Taylor
+852 2822 4202 huidong@hsbc.com.hk
+44 20 7991 5006 tim.maunder-taylor@hsbcib.com
Thomas Koenen Joyce Chen
+49 211 910 4402 thomas.koenen@hsbc.de Associate
+8862 8725 6022 joycechchen@hsbc.com.tw
Myles McMahon
+852 2822 4676 mylesmacmahon@hsbc.com.hk Soyun Shin
Associate Analyst
+822 3706 8774 soyunshin@kr.hsbc.com