Lineage II M to Be Launched in Taiwan within 2020
The author is an analyst of Shinhan Investment Corp. He can be reached at mj1224@shinhan.com. -- Ed.
Concerns over Lineage II M fully reflected in current share price
Lineage II M's sales ranking has been fluctuating between second and third, causing concerns over the drop in sales. NCsoft's share price, which had previously jumped near KRW1mn, stabilized at low-KRW800,000 levels as a result. However, we believe the drop in daily average sales is within natural levels for a MMORPG. Considering that the downtrend in Lineage M’s daily average sales ended roughly four quarters from its launch, we expect to see a similar decline continue through 4Q20 for Lineage II M.
We forecast daily average sales of Lineage II M at KRW1.9bn for 3Q20 and KRW1.7bn for 4Q20 (vs. roughly KRW2.1bn in 2Q20). The castle siege event launched on September 13 has triggered competition among top-ranking users, laying the foundation for a longer-term success of the game. The first anniversary event expected in 4Q20 should also help to limit a further decline in daily average sales going forward. With NCsoft shares now trading 15% lower vs. the previous peak, we believe concerns over the drop in sales are fully reflected in the current share price.
Lineage II M in Taiwan and Blade & Soul 2 to launch within 2020
Lineage II M is set for launch in Taiwan within 2020. In contrast with its strategy for Lineage M, NCsoft plans to directly publish Lineage II M in Taiwan. Earnings contribution from the game should come in relatively higher as a result. A successful release in Taiwan will further raise expectations for upcoming launches in bigger markets including Japan. Meanwhile, Blade & Soul 2 is also scheduled for release within the remainder of the year (possibly in December). Popular among the younger-age group, we expect the game to rank high on gross sales charts on the inflow of new users.
Ahead of the launch of both games within the end of the year, NCsoft will likely start pre-registration events and other promotional efforts in October. We expect market expectations to riseas a result.
Retain BUY and target price of KRW1,050,000
We retain BUY on NCsoft for a target price of KRW1,050,000. Investment points are as follows. First, concerns over Lineage II M are fully reflected in the current share price. Second, expectations should grow for the release of Lineage II M in Taiwan and Blade & Soul 2, with both scheduled within the remainder of 2020. We believe time will prove to be on NCsoft's side on this point. Third, following the successful IPO of Kakao Games, NCsoft shares are now trading at a wider valuation gap with domestic heavyweights (2021F PER: NCsoft 20x vs. Kakao Games 54x and Netmarble 44x based on consensus).The resulting increase in valuation merit further adds to the attractiveness of NCsoft, in our view.