The author is an analyst for NH Investment & Securities. He can be reached at jaemin.ahn@nhqv.com -- Ed.
Following on from a narrowed operating loss in 3Q23, we expect Netmarble to turn to profit in both 4Q23 and 2024. Earnings should recover on the launch of a number of new global titles and Chinese game launches in 4Q23.
Favorable results for new games released in 3Q23
We maintain a Buy rating on Netmarble. The results of new games released in Korea in 3Q23 were sound, and OP is expected from 4Q23 thanks to new lineups slated for release in 4Q23.
The firm’s operating loss should narrow significantly in 3Q23 thanks to the sound performances of Stone Age (China) in June, Tower of God: New World in July, and Seven Knights Idle Adventure in September.
Also, three major titles (Ni no Kuni: Cross Worlds, The Seven Deadly Sins, and Stone Age: Awakening) that have obtained business licenses from the Chinese government, are set to launch in the country through Tencent in 4Q23. Moreover, Arthdal Chronicles and Solo Leveling: ARISE are due to be released in Korea within this year.
We lower our TP from W60,000 to W53,000 on earnings estimate reductions. Our new TP is based on the sum of game business value and investment asset value. We cut the value of investment assets due to falling share prices of invested stocks (NCSOFT, HYBE, and Coway) amid the recent decline in the Korean stock market.
3Q23 preview: Operating losses narrow
We forecast consolidated 3Q23 sales of W667.0bn (-4.0% y-y, +10.6% q-q) and an operating loss of W11.8bn (RR y-y, RR q-q), with the firm’s operating loss matching both our previous estimate of W11.6bn and consensus of W13.8bn. Thanks to the sound performances of Stone Age, Tower of God: New World, and Seven Knights Idle Adventure, 3Q23 operating loss should narrow significantly. Moreover, as these games continue to perform strongly, we anticipate a turn to profit in 4Q23, with OP of W9.1bn.