Cheil Bets on Olympics to Chase Bottom Line Blues

By Park Hyong-ki

Staff Reporter

Cheil Communications is not in shape, but Korea's largest public relations firm is hoping for a change in its fortunes betting heavily on the Beijing Olympics, for which its biggest client Samsung Electronics is a major sponsor.

Earnings fell in the first quarter. Its biggest client, Samsung Group, was undergoing investigations into business irregularities by an independent prosecutor and the company experienced its worst off-season ever.

The company posted an operating profit of 575 million won in the first three months of this year, down 78 percent from a year ago on decreased ad orders from Samsung.

Given that orders from Samsung account for about 80 percent of its total ― 70 percent from Samsung Electronics and the rest from the group's affiliates, it was inevitable for Cheil to perform poorly as Samsung did not launch any marketing campaigns during the probe.

``Besides the Samsung investigation, an economic slowdown in the first quarter made it difficult for the ad agency to do business, in addition to the January-March period being a slack season for the ad industry,'' said Jean Park, an analyst of Woori Investment & Securities.

However, Park optimistically said things are about to change in the second quarter, citing the end of the Samsung probe and the upcoming 2008 Beijing Olympics.

Samsung is expected to boost its advertising campaigns globally especially at the Olympics, as part of efforts to revamp its image following the exposure of its wrongdoings. Its main flagship Samsung Electronics is one of the official sponsors of the games.

Also, the company is approaching its high-demand season. ``Generally, demand for ads soars in the second and fourth quarters,'' said Park, forecasting a summer rally for Cheil shares. He recommended ``buy'' with a projection of the stock price to reach as high as 335,000 won by the year's end from 253,500 won on May 19.

CJ Investment & Securities analyst Min Young-sang projects the ad firm to post an operating profit of 13.1 billion won in the second quarter, up 41 percent from a year earlier.

``Samsung Electronics' expansion in sports marketing will positively affect Cheil's balance sheet in the coming months,'' he said.

Analysts noted that it is also positive that it will see the agency actively aiming to secure orders from other exporting companies, besides Samsung. Last year, it handled global ad campaigns for Hankook Tire, and this year, it is managing ads for the Korea Tourism Organization.

Although its operating profit fell in the first quarter, it gained advertising orders both at home and abroad worth 357.4 billion won, up 16 percent from the same period in 2007.

phk@koreatimes.co.kr