Temporary Lack of Momentum
The author is an analyst of NH Investment & Securities. He can be reached at jaemin.ahn@nhqv.com. -- Ed.
Sales of Krafton’s Callisto Protocol have arrived sluggish, missing our forecast. With no new titles scheduled to release until 3Q23, the firm is entering a temporary momentum gap. However, as its share price has already adjusted, further share price decline should be limited, with the shares now trading at a 2023E P/E of 11.2x
Temporary lack of momentum
Although maintaining a Buy rating, we lower our TP on Krafton from W270,000 to W230,000. Sales of Callisto Protocol (launched in Dec 2022) have fallen short of consensus, and related sales estimates have been cut accordingly.
As there are no new game releases scheduled until 3Q23, Krafton is entering a momentum gap. Also, sales stabilization for both PUBG and Game for Peace (China) looks inevitable. In 2023, the Chinese game market is to begin granting service licenses in earnest, and a number of new games are set to be released in China. We advise focusing on the sustainability of Game for Peace sales.
However, we note that one new game is on track for release in 2023, and various new titles (including Project Black Budget) are being prepared for 2024. Against this backdrop, once the launch schedules become a little more specific, momentum should revive in 2H23. Although it is still difficult to predict the exact timing, the resumption of India’s Battleground (BGMI) service should also serve as a share price rebound event.
4Q22 preview: OP to miss expectations
Krafton is forecast to report consolidated 4Q22 sales of W436.8bn (-1.6% y-y, +0.7% q-q) and OP of W84.1bn (+95.6% y-y, -40.1% q-q), with OP to fall short of the consensus of W156.4bn. Despite the inclusion of Callisto Protocol sales, 4Q22 sales likely slid due to 4Q off-seasonality for Battleground.
Krafton should book 4Q22 marketing costs of W53.5bn (+15.4% y-y, +171.1% q-q), with expenditure rising in line with its new title release. Goodwill amortization cost of about W25.0bn related to Unknown Worlds (acquired in 2021) should also be reflected.