Kakao Games
The author is an analyst of NH Investment & Securities. He can be reached at jaemin.ahn@nhqv.com -- Ed.
Following the successes of Eversoul and ArcheAge War, Kakao Games no longer needs to prove its competence as a publisher. Ares (scheduled to be released in June) and Goddess Order (2H23) are both also likely to rank high, and the Japanese market releases of Eversoul and Odin are on tap.
Publishing capabilities well verified
Although reiterating a Buy rating, we lower our TP on Kakao Games from W57,000 to W52,000. Calculated by applying a target P/E of 22x to 2023E EPS, our new TP reflects cuts to our 2023 and forward earnings estimates. With the release of a highly-anticipated new title, Ares: Rise of Guardians, having been pushed back to end-June, we have adjusted our related sales projections. But, the firm’s game publishing acumen is now fully verified by the twin successes of Eversoul (released in January) and ArcheAge War (March).
In addition, Odin(in 2Q23) and Eversoul(in 3Q23) are entering the Japanese market, and Goddess Order is scheduled to be rolled out in 2H23.
On the non-game business side, we believe that Kakao VX’s overseas expansion will pick up in earnest, in turn making healthy contributions to sales growth.
1Q23 preview: OP to arrive sluggish
Kakao Games should post consolidated 1Q23 sales of W295.2bn (+10.8% y-y, +25.3% q-q) and OP of W21.2bn (-49.7% y-y, +136.2% q-q), with OP missing both our previous estimate of W31.4bn and consensus of W31.2bn.
Despite the warm public receptions for Eversoul and ArcheAge War, we believe that Eversoul will be a minor factor in firm’s 1Q23 top-line figures, and only about 10 days of sales for ArcheAge War is to be reflected. The company’s mobile game sales likely totaled around W192.1bn (+8.4% y-y, +26.6% q-q).
Marketing costs likely upped to W28.7bn (+92.9% y-y, +88.7% q-q) in keeping with the launches of new titles. We estimate that 1Q23 labor costs amounted to W52.0bn (+9.4% y-y, -1.1% q-q).