Web-board Game Business & PAYCO Drive Growth

The author is an analyst of NH Investment & Securities. He can be reached at jaemin.ahn@nhqv.com. -- Ed.

 

Due to Covid-19, revenue growth at both the web-board game business and payment & ad division was notable in 1Q20. We anticipate that online activity and payments will remain strong even after Covid-19 effects ease.

Two growth drivers: Web-board game business & PAYCO

We raise our TP on NHN from W75,000 to W90,000, anticipating solid revenue growth on eased web-board game regulations. Moreover, thanks to expanding online payments amid the Covid-19 crisis, we expect the company to continue to see revenue growth at the payment & ad division.

NHN quickly made adjustments to its loss limitation rules when regulations were eased on Apr 7. As a result, Hangame Poker climbed to 13th on the sales ranking chart on the Google App Store on May 8, its highest level to date.

Meanwhile, PAYCO’s GMV rose to W1.7tn (+30.8% y-y) in 1Q20, driving revenue growth at the payment & ad division. Given that: 1) PAYCO has an advantage in offline payments compared to its competitors; and 2) Covid-19 effects are gradually easing, we expect the company’s GMV to continue rising.

However, we reiterate a Hold rating on NHN given the firm’s limited mobile game lineup (excluding web-board games) and declining revenue for existing titles, including Disney Tsum Tsum, Crusaders Quest, and Compass. In addition, as more time is needed for PAYCO to record significant OP growth, we predict that NHN’s overall earnings improvement will be limited for the time being.

1Q20 review: Earnings exceed consensus

NHN posted 1Q20 sales of W394.6bn (+6.5% y-y, -1.4% q-q) and OP W28.3bn (+30.2% y-y, +61.7% q-q), with OP exceeding our estimate (W20.9bn) and consensus (W23.3bn) thanks to: 1) game revenue growth on peak seasonality for web-board games; and 2) expanding payment & ad revenue on the back of increasing online payments.

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