The author is an analyst for NH Investment & Securities. He can be reached at jaemin.ahn@nhqv.com -- Ed.
Wemade’s 3Q23 bottom line should show a turn to the black on a royalties contract for Mir 2 & 3 in China. We anticipate solid future OP, forseeing annual W100bn in additional royalty income over the next five years. A global P2E version of Night Crows is set to be released within the year, continuing the firm’s efforts to expand its blockchain game market presence.
Royalties secured under royalties contract for Mir 2 & 3 in China
We maintain a Buy rating and a TP of W52,000 on Wemade. Having recently signed a license contract with Actozsoft for The Legend of Mir 2 & 3 in Chinese market, Wemade is to receive royalties a total of W500bn over the next five years (W100bn to be paid out annually in 3Q). In keeping, we boost our related earnings estimates. But, despite upward adjustments in our earnings estimates for 2023 and beyond to account for future royalties, our TP reflects an adjustment in our target P/E multiple to 17x in light of recent weakening in sentiment toward game stocks.
As the main sponsor of G-Star2023 (to be held in November), Korea’s largest game show this year, WeMade will unveil Legend of Ymir (MMORPG) and Fantastic4 Baseball (sports)—both titles are slated for release in 2024. Meanwhile, a global P2E version of Night Crows is set to be rolled out within 2023. Moreover, in 2024 we expect a wealth of new title arrivals, including Love Recipe (SNG), The Legend of Mir 2 (MMORPG), Valkyrious (collecting RPG), Abyssrium Origin (casual), and Dungeon & Stones (puzzle RPG).
Wemade recently invested in SK Planet, securing a 12.4% stake. Via positive synergies with OK Cashback and mobile wallet Syrup, we expect Wemade to continue expanding its presence in the blockchain market.
3Q23 preview: To show turn to profit thanks to royalties
Wemade will likely record consolidated 3Q23 sales of W239.4bn (+121.1% y-y, +50.3% q-q) and OP of W53.4bn (TTP q-q), with operating income exceeding both our previous estimate (operating losses of W29.7bn) and consensus (operating losses of W27.8bn). Sales figures for 3Q23 should reflect licensing revenue in relation to the receiving of royalties for Mir 2 & 3. Although Night Crows’ sales rankings remain solid, top-line decline is inevitable over time.