Growth in Overseas Gaming Gear Sales Starting in Earnest
The authors are analysts of Shinhan Investment Corp. They can be reached at yoon86changmin and minseo.cho@shinhan.com, respectively, -- Ed.
4Q20 OP likely in line with consensus at KRW6.4bn (+363% YoY)
We now expect ABKO to post sales of KRW41.1bn (+83.4% YoY) and operating profit of KRW6.4bn (+363.0% YoY) for 4Q20. Gaming gear sales likely increased by 33.8% YoY to KRW26.2bn in the domestic market and by 100.5% YoY to KRW2.8bn in overseas markets. Sales from the small appliance business should come in at KRW9.6bn (+1,060.2% YoY).
ABKO manufactures products in China for distribution and sales at home and abroad. The global shortage of containerships in operation from October last year led to delays in shipments through early December. Despite the impact, we believe the company still secured earnings in line with previous expectations for 4Q20. With shipments now running smoothly, distribution and sales are returning to normal levels.
Investment points: 1) Growth in overseas gaming gear sales starting in earnest; 2) small appliance sales on a steep uptrend
Following success in the domestic market, ABKO started expandingin to overseas markets from 2016. Sharp growth in overseas sales began with the launch of online sales through Amazon in the US from November 2019. For further regional expansion, the company has also started to sell products through Amazon in the UK and India. The number of products sold through Amazon, which started off at six, is expected to jump above 150 going forward. As a result, we expect overseas gaming gear sales to rise by 275% YoY to KRW36.2bn in 2021.
Following its launch in 2H19, ABKO's small appliance business has seen steep growth thanks to similarities with gaming gears in target age groups and market trends (fast-changing market geared toward online/SNS-based consumers in their teens through 30s). With the company building on its strengths in gaming gear to drive rapid growth, small appliance sales are expected to reach KRW60.6bn (+70.2% YoY) in 2021.
2021 growth outlook: Sales +53% YoY, OP +74% YoY
We forecast sales at KRW243.1bn (+53.4% YoY) and operating profit at KRW42.9bn (+73.6% YoY) for 2021, with growth expected across the board. ABKO shares are currently trading at a 2021F PER of 8.4x vs. the average PER of 30.4x recorded by global peers Logitech and Corsair Gaming. Shares look excessively undervalued, considering growth potential secured from rapidly growing global markets for e-sports, gaming gears, and small appliances. We thus expect to see an upturn in share price going forward.