The author is an analyst for NH Investment & Securities. He can be reached at jaemin.ahn@nhqv.com -- Ed.
Starting from 4Q23, OP should normalize at Netmarble. With expectations in play for its 2024 lineup, the firm is anticipated to enjoy new game momentum as well as annual OP improvement. Financial structure enhancement is also in the cards.
OP starting to rebound
Reiterating a Buy rating, we raise our TP on Netmarble from W53,000 to W68,000. Following on from a narrowed operating loss in 3Q23, thanks to the sound performance of new games released in Korea in the quarter, Netmarble is expected to turn to annual OP in 2024 on the back of a robust new game lineup. It is also positive that the company’s financial structure is improving on the sale of stake in HYBE in November.
Netmarble should be able to enter the black from 4Q23, backed by sound earnings for Stone Age (China) from June, Tower of God: New World from July, Seven Knights Idle Adventure from September, and Stone Age: Awakening (China) from October.
In 1H24, we expect a wealth of new arrivals, including Arthdal Chronicles: Three Factions, Solo Leveling: ARISE, Raven 2, King Arthur: Legends Rise, Paragon: The Overprime, Let’s Get Rich 2 (Korea), and Ni no Kuni: Cross Worlds (China). Helped by strong new title rollouts, Netmarble should return to OP from 2024. We also note that three additional games (The Seven Deadly Sins: Origin, RF Online Next, and Demis RE:BORN) which were well received at G-Star 2023 are on tap to arrive within 2024.
As OP improvement is becoming visible, the possibility of additional stake sales is limited. We expect the majority of funds secured via the sale of HYBE shares (W523.5bn) to be used for loan repayment.
4Q23 preview: To return to OP
On a consolidated basis, Netmarble is forecast to record 4Q23 sales of W693.2bn (+0.9% y-y, +9.9% q-q) and OP of W5.4bn (TTP y-y, TTP q-q), bolstered by favorable results for new games and cost reduction (including labor costs) efforts. Interest costs should also narrow on financial structure improvement from the sale of HYBE shares.