The author is an analyst for NH Investment & Securities. He can be reached at jaemin.ahn@nhqv.com -- Ed.
Although sales of NCSOFT’s TL have arrived sluggish, initial payment for the title should be reflected alongside its global release. Moving ahead, we expect NCSOFT to display a change in strategy with new games such as Battle Crush and Project BSS. Cost reduction efforts should kick off as new CEO appointment and executive restructuring begin in earnest.
Changing little by little
Although maintaining a Buy rating, we lower our TP on NCSOFT from W310,000 to W280,000, reflecting cuts to our earnings estimates for the firm’s new game lineup from 2024. Despite disappointing results for Throne and Liberty (TL; released in Dec 2023), additional trimming of our earnings projections is limited, as we had already reflected conservative estimates for the title.
Considering the recent appointment of a new co-CEO and ongoing restructuring around executives, we anticipate a change in direction at the company. Cost reduction effects should also appear little by little.
While results for TL in the domestic market have been disappointing, the game is still set to be released through Amazon Games in 2Q24 after CBT in 1Q24. After the launch, initial payment should be reflected in earnings. Given that sales expectations are already muted, we see little additional downside. Elsewhere, attention should be paid to NCSOFT’s non-MMORPG strategy through new games such as Battle Crush (action/battle) and Project BSS (collecting RPG), which are scheduled to launch in 2Q24.
4Q23 preview: OP to arrive sluggish
We estimate consolidated 4Q23 sales of W406.9bn (-25.7% y-y, -3.8% q-q) and OP of W5.5bn (-88.4% y-y, -66.6% q-q), expecting OP to miss the consensus of W17.5bn. Sales of W10.5bn for TL should be reflected, and sales decline for Lineage W (W89.2bn; -1.0% q-q) and Lineage 2M (W53.7bn; -2.2% q-q) appears to be slowing. However, marketing cost likely climbed 29.2% q-q to W35.7bn on participation in G-star 2023 and TL rollout efforts.