Lineage 2M to Drive Earnings in 2020
The author is an analyst of NH Investment & Securities. He can be reached at jaemin.ahn@nhqv.com. -- Ed.
We anticipate that NCSOFT’s B&S 2, which was originally expected to be launched around 2Q21, will be released by yearend. With new offerings likely to be released sooner than expected, the firm should enjoy both new game momentum and earnings growth going forward.
Lineage 2M to drive earnings in 2020, B&S 2 in 2021
We maintain a Buy rating on NCSOFT, our top pick for the game sector, and raise our TP from W850,000 to W900,000. Despite several issues, Lineage 2M sales are projected to remain at a robust level. On top of that, positive momentum is to be highlighted, as the company has said that the launch of Blade & Soul 2 (B&S 2; originally slated for launch in 2021) will proceed faster than expected (by yearend).
Lineage 2M, which is showing robust results in Korea, is preparing to launch globally in Japan and Taiwan within this year, and expectations are rising for a possible entry into the Chinese market in 2021.
In addition, sequel B&S 2 should provide strong new game momentum, a factor that is likely to be positively reflected in NCSOFT’s share price. Adopting an MMORPG style that should appeal to a broader range of users than Lineage M/ 2M, the game is anticipated to roll out first in regions where the PC version of B&S has performed well, such as the US and China.
1Q20 results: Incentive payments weighed upon overall earnings
In 1Q20, NCSOFT posted sales of W731.1bn (+103.8% y-y, +37.0% q-q) and OP of W241.4bn (+203.6% y-y, +71.0% q-q), with OP missing both our estimate of W272bn and consensus of W275.1bn.
Sales for Lineage M came in stable at W212bn, and Lineage 2M sales reached W341.1bn (W3.79bn per day), driving overall earnings improvement.
Affected by incentive payments, overall labor costs climbed to W211.8bn (+47.9% y-y, +24.6% q-q), weighing upon 1Q20 earnings. However, labor costs are forecast to decline again from 2Q20.