Krafton
The author is an analyst at NH Investment & Securities. He can be reached at jaemin.ahn@nhqv.com -- Ed.
Battlegrounds Mobile India (BGMI) service has restarted, and Krafton’s Battlegrounds IP should maintain steady sales with the help of various events (including Esports tournaments) in 2H23. Despite stable earnings, current share price momentum is a bit tepid due to an absence of new titles.
Looking forward to promotions and Esports tournaments in 3Q23
We maintain a Buy rating and a TP of W250,000 on Krafton. Given an absence of upcoming major new titles, we believe that 2023 will be the year which will confirm the power of the firm’s Battlegrounds IP. Supported by various events (including supercar collaboration promotions in 3Q23, the final of the Esports PUBG Nations Cup (PNC), and the Asian Games (September)), the firm’s sales look primed to resurge in the near future.
But, with no prominent new title coming until 2H24, it is difficult for Krafton to warrant an above-average valuation within the current game industry. Its share price should rebound once new titles become visible.
2Q23 preview: OP to arrive slightly below expectations
On a consolidated basis, Krafton should book 2Q23 sales of W399.8bn (-5.6% y-y, -7.8% q-q) and OP of W133.5bn (-19.5% y-y, -52.8% q-q), with OP missing both consensus of W144.6bn and our previous estimate of W179.0bn. Besides the dissipating of the promotion effects for Battlegrounds enjoyed in 1Q23, Chinese market sales of Game for Peace have fallen off amid off-seasonality. Following a share price hike, linked compensation costs likely upped to W16.9bn in 2Q23.
We estimate that Krafton’s mobile sales fell to W268.4bn (-16.0% y-y, -22.9% q-q) in 2Q23. Battlegrounds Mobile India (BGMI) service restarted in June, but only one-month worth of sales for such are to be seen in 2Q23 numbers. Having recently returned to the level seen last year (before a suspension), sales of BGMI are to be fully reflected from 3Q23.
We estimate online sales of W115.5bn, upping 30.4% y-y but falling 35.3% q-q due to high-base effects from promotion events in 1Q23.