NCSOFT’s Investment Strategy Highlighted by NC Dinos Win
The author is an analyst of NH Investment & Securities. They can be reached at jaemin.ahn@nhqv.com. -- Ed.
NCSOFT’s professional baseball team, the NC Dinos, won its first Korean Series title on Nov 24, nine years after its foundation. We expect the success of the NC Dinos, and the team’s decision to celebrate with a replica of the Execution Sword, to bolster NCSOFT’s corporate image and brand awareness, even among people who are unfamiliar with the firm’s games.
NCSOFT’s mid/long-term investment strategy highlighted by NC Dinos win
We reiterate a Buy rating and TP of W1,220,000 on NCSOFT. After securing their first Korean Series title this week, NCSOFT’s baseball team, the NC Dinos, celebrated by lifting a replica of the Execution Sword, a highly coveted item from Lineage, a move that likely boosted the firm’s brand awareness and highlighted its investment philosophy. We expect this event to positively affect the company’s EV, as well.
CEO Taek-jin Kim aided NC Dinos in securing their first title by making mid/long-term investments in the team. He has also helped NCSOFT grow into the nation’s number-one game company, despite various external issues such as management disputes with Nexon and the transition to the mobile game market over the past few years.
NCSOFT spends a longer amount of time developing and releasing games than its competitors. However, the firm’s mid/long-term investment philosophy allows it to maintain such a development schedule. Thanks to this strategy, the company has shown steady sales and OP growth over the past 20 years. Also, among domestic game makers, NCSOFT’s average employee service period is long at 5.5 years (vs 3.9 years on average). The firm’s recent investment in mobile games, IP development, global game development, and platform game releases is expected to yield tangible results in earnest from 2021. Moreover, from an ESG perspective, we positively view management’s mid/long-term investment philosophy.
Mid/long-term investments to bear fruit in earnest from 2021
NCSOFT plans to release a number of new titles in 2021. Blade & Soul 2 and Lineage 2M (Taiwan) are both slated for release in 1Q21, and ION 2, Project TL, and Lineage 2M (Japan and global) are all to be rolled out in 2H21. And, with additional projects that have been in the works for the past few years set to be unveiled in the not-too-distant future, we believe that the fruits of the firm’s mid/long-term investments will start being seen in earnest from next year.