Time for TL-related Expectations to Grow
The author is an analyst of NH Investment & Securities. He can be reached at jaemin.ahn@nhqv.com. -- Ed.
While sales are falling ahead of the release of new titles, momentum related to TL (to launch in 2Q23) is rising. We recommend using share price dips as buying opportunities. Four new titles scheduled for release in 2H23 are also highly anticipated.
Time for TL-related expectations to grow
While maintaining a Buy rating, we lower our TP on NCSOFT from W640,000 to W620,000, as we cut our estimates for 2023 and beyond, in consideration of poor 4Q22 results.
Sales were sluggish in 4Q22, and will inevitably fall further in 1Q23. However, expectations for TL (to launch in 1H23) are rising. A final test for Korean players is scheduled to take place at end-February, and we expect details on a business model, global console game publisher, and release date to be announced shortly thereafter.
Also, we believe that information on four new titles scheduled for release in 2H23 (PUZZUP, Project R (action battle), Project G, and Blade & Soul S (RPG)) will be released one game at a time.
4Q22 review: Both sales and OP arrive sluggish
NCSOFT registered consolidated 4Q22 sales of W547.9bn (-27.6% y-y. -9.3% q-q) and OP of W47.4bn (-56.7% y-y. -67.2% q-q), with OP arriving below both our estimate (W72.7bn) and consensus (W76.4bn).
Lineage M sales totaled W112.8bn (-27.1% y-y. -23.0% q-q), while Lineage 2M sales came to W82.3bn (-33.9% y-y, -3.8% q-q), remaining stable despite the release of competing titles. Sales of Lineage W amounted to W176.9bn (-50.5% y-y, -10.3% q-q), showing a decline as a year has passed since the game’s launch. We expect sales for the title to stabilize going forward.
Meanwhile, labor costs rose to W232.6bn (-9.2% y-y. +22.6% q-q) in 4Q22 due to special year-end bonus and incentive payouts following the success of Lineage W. Marketing expenses totaled W48.1bn (-4.5% y-y, -1.6% q-q), increasing q-q during the peak 4Q season.