The authors are analysts of Shinhan Investment Corp. They can be reached at firstname.lastname@example.org and email@example.com, respectively. -- Ed.
1Q20 OP forecast at KRW7.7bn (+46% YoY)
We expect NHN KCP to post sales of KRW124.4bn (+15% YoY) and operating profit of KRW7.7bn (+46% YoY) for 1Q20. Top-line growth on a YoY basis should accelerate vs. the 9% levels recorded in 2019, driven by the increase in: 1) online settlements amid the COVID-19 outbreak; and 2) transactions of overseas clients.
In the domestic market, online stores saw sales jump by 27% YoY in February, while department stores and discount stores suffered from a 31% and 20% YoY decline in sales, respectively. Combined settlements of the five major online shopping malls in the domestic market increased by 12% MoM to KRW4.8tr in February vs. KRW4.3tr in January, clearly showing the impact of the COVID-19 outbreak.
Backed by growth in online payment settlements, NHN KCP is expected to report double-digit top-line growth for all businesses aside from offline value-added network (VAN) services (2020 sales share forecast at 7%). Sales are projected to reach KRW108.2bn (+17% YoY) from payment gateway (PG) services and KRW5.4bn (+23% YoY) from online VAN services in 1Q20.
2020 outlook: Sales +17% YoY, OP +29% YoY
For 2020, we forecast sales at KRW549.9bn (+17% YoY) and operating profit at KRW40.9bn (+29% YoY). Solid growth should continue at major businesses, with sales expected to rise to KRW483.8bn (+19%YoY) from PG services and KRW24bn (+21% YoY) from online VAN services. Earnings forecasts are likely to be adjusted further upward if the COVID-19 pandemic continues for a prolonged period of time.
Meanwhile, full-fledged earnings contribution from a major overseas client is expected to start this year. As a result, combined transactions of overseas clients should rise to KRW3.3tr (14% of total transactions) in 2020 vs. KRW0.5tr (3%) in 2018 and KRW1.1tr (6%) in 2019.
Retain BUY for a target price ofKRW30,000
We retain our BUY rating on NHN KCP for a target price of KRW30,000. Shares are still attractive at current valuations (2020F PER of 17.5x), given: 1) forecasts for quarterly earnings growth in the near term (1Q20 operating profit +46% YoY); and 2) mid/long-term uptrend expected from the expansion of overseas transactions.