The author is an analyst of NH Investment & Securities. He can be reached at firstname.lastname@example.org. -- Ed.
While Pearl Abyss is preparing to roll out three new game lineups in 2021, a 2020 earnings downturn looks inevitable due to the end of the Black Desert series cycle. We expect the firm’s share price to rebound upon visualization of a launch for Crimson Desert, its nearest anticipated title release.
Some time left until launch of new lineup
Adjusting our rating on Pearl Abyss from Buy to Hold, we lower our TP from W230,000 to W185,000. The company is currently preparing three new titles (Crimson Desert, Dokev, and Plan 8) which are slated for launch in 2021. Due to the gap in new lineup momentum, an earnings downturn looks inevitable in 2020. We expect the firm’s share price to recover upon increased visibility of a timeline for the three new games.
2020 earnings downturn looks inevitable
We expect Pearl Abyss to record 2020 sales of W454.2bn (-15.7% y-y) and OP of W137.9bn (-10.3% y-y), with the decline in OP inevitably resulting from the gap in new game releases. However, backed by expected launches of Crimson Desert and DokeV next year, the firm’s earnings should pick up dramatically in 2021, with 2021 sales estimated at W673.5bn (+48.3% y-y) and OP at W230.3bn (+66.9% y-y).
Eve Online China and Shadow Arena to provide momentum in 2020
We note that Pearl Abyss does boast some 2020 lineup potential. A Chinese version of Eve Online (published by Netease) recently acquired a license from the Chinese government and is expected to be launched in 2Q20 at the earliest. Meanwhile, Shadow Arena has undergone three closed beta tests (CBTs) and is scheduled for release in 3Q20. In our earnings estimates, we have reflected projected daily sales for Eve Online and Shadow Arena of W50mn and W100mn, respectively.
Regarding the recent issue surrounding the suggestion that some developers involved in major projects should retire, Pearl Abyss has clarified that: 1) while a few developers have resigned, important projects are to proceed as scheduled; and 2) it remains committed to improving its company culture and labor personnel policy. We believe related concerns have been resolved.