The author is an analyst for NH Investment & Securities. He can be reached at jaemin.ahn@nhqv.com -- Ed.
Backed by lower P/E levels than those for other game companies and healthy 3Q23 earnings, Krafton’s share price has rebounded. However, the recent share price rise has pushed up its P/E. As Krafton’s major new title releases are forecast to concentrate in 2025, new lineup momentum should prove stronger in 2H24 than in 1H24.
New title launches to concentrate in 2025
Reiterating a Buy rating, we raise our TP on Krafton from W220,000 to W250,000. We boost our earnings projections for 2024 and beyond, reflecting expectations for new lineups which were positively received at G-Star 2023. Our upwardly revised TP also reflects the recent rise in game sector share prices.
We expect that new lineup momentum will be reflected in earnest from 2H24. In the meantime, the launch of Dark and Darker Mobile (extraction RPG) in 1H24 and inZOI (simulation) in 2H24 should help to bridge the gap prior to larger title releases, which are to concentrate in 2025. We anticipate the launch of Project Black Budget (extraction shooter) in end-2024, followed by the next Subnautica (adventure) and Project GoldRush (action adventure) in 1H25.
In 1H24, we advise monitoring for a sales rebound for Game of Peace (China), which has entered a downward stabilization phase this year. In particular, 1Q24 sales will be important, as sales for the title tend to concentrate in 1Q.
4Q23 preview: Slowdown expected
On a consolidated basis, Krafton is forecast to report 4Q23 sales of W410.5bn (-13.3% y-y, -8.8% q-q) and OP of W112.5bn (-18.0% y-y, -40.6% q-q). Sales should inevitably decline on the entering of off-seasonality and the wrapping up of esports events and promotional collaborations with supercar brands, which were concentrated in 3Q23. In addition, having written back stock-based compensation costs of W19.8bn in 3Q23, the firm is estimated to recognize stock-based compensation costs of W15.1bn in 4Q23 following the recent share price rally.