Crimson Desert Likely to Be Unveiled at gamescom in August
The author is an analyst of KB Securities. He can be reached at drlee@kbfg.com. -- Ed.
Upgrade to BUY, target price unchanged at KRW69,000
We maintain our TP at KRW69,000 (KRW340,000 prior to stock split), but we upgrade Pearl Abyss to BUY, as upside has increased following the recent pullback. We derived our TP using the P/B-ROE model (12m fwd BVPS of KRW12,352, fair P/B of 5.55x). To reflect the expected popularity of Crimson Desert, we revised up 2021E-2025E ROE (22.4%→24.8%), but this did not affect our TP. Our TP corresponds to 29.0x 12m fwd implied P/E.
1Q21 earnings miss market consensus on poor mobile revenue and delayed revenue recognition in North America and Europe
Pearl Abyss posted 1Q21 revenue of KRW100.9bn (-4.5% QoQ, -24.2% YoY) and OP of KRW13.1bn (-34.5% QoQ, -71.7% YoY), missing the market consensus by 7.5% and 52.7%, respectively. We attribute the disappointing results to a 14.0% QoQ decline in mobile game revenue and delayed revenue recognition for Black Desert Online in North America and Europe. Specifically, Pearl Abyss began offering the game directly from March, so only KRW9.0bn of KRW20.0bn in game payments during the month was booked as revenue; the remaining KRW11.0bn should bolster 2Q21 revenue. Meanwhile, OP should reach KRW29.6bn in 2Q21 and KRW22.5bn in 3Q21 as marketing spending normalizes and PC game revenue ramps up.
Crimson Desert likely to be unveiled at gamescom in August
We believe Crimson Desert will be unveiled this August at gamescom 2021. Prior to the pandemic, packaged games were first showcased at E3 in June before user experiences were offered at gamescom in August and games were released for the Christmas season. This year, both E3 and gamescom are scheduled to be held virtually. Rather than participating in both events, we believe Crimson Desert will be unveiled in August and rolled out toward the end of this year. We forecast 2.0mn units to be sold in 2021 and 2.95mn in 2022, with revenue (including item sales) at KRW132.0bn and KRW265.7bn, respectively. We do not believe this is an aggressive outlook, as annual sales for Game of the Year typically reach 10-20mn units. Going forward, announcements regarding in-game content for Crimson Desert and a concrete rollout schedule should catalyze earnings and stock performance, in our view.