Focus on Expansion of Commerce Business in 2H21
The author is an analyst of Shinhan Investment Corp. He can be reached at mj1224@shinhan.com. -- Ed.
Focus on expansion of commerce business in 2H21
aggressive push for expansion of its commerce business is expected to pick up pace from 2H21. Collaboration efforts with E-Mart following the recent share swap have made limited progress to date amid complications in other partnerships, such as the Shinsegae-led bid for eBay Korea. From August, however, the addition of E-Mart to NAVER’s grocery shopping platform should spark an increase in joint efforts including utilization of PP (Picking & Packing) centers and membership programs.
The partnership with CJ Logistics, on the other hand, has been making rapid progress thanks to the well-aligned needs of the two companies. Following the ramp-up of the Gunpo fulfillment center in June, the two companies are gearing up to operate a temperature-controlled fulfillment center in Yongin from August, which will allow NAVER to offer next-day delivery of fresh food products. Meanwhile, the launch of LINE Smartstore operations in Japan, currently delayed due to data privacy issues, is set to move forward upon completion of data transfers for LINE Pay.
Ample potential from wide variety of profitable assets
NAVER has several potentially profitable assets under its belt. The company's webtoon business has been building on its strengths as a global cross-border platform and is now making slow but steady progress in Japan after a sluggish start. In addition, ZEPETO's MAU levels are on the rise backed by growing interest in the metaverse, which is emerging as a highly popular marketing tool and showing potential as a new advertising platform. Game functions, the core content for metaverse ecosystems, will be added in 2H21 to strengthen ZEPETO’s business model even further.
In the domestic market, NAVER has remained relatively conservative on expansion due to regulatory concerns as the dominant leader in search and portal operations. Rapid digitalization of industries, however, has led to the growth of new platform operators (Kakao, Coupang, Baedal Minjok, etc.) in areas new to NAVER, which will likely consider taking steps toward market expansion as a latecomer using existing assets (search portal, map, etc.).
Retain BUY and raise target price to KRW540,000
We raise our target price for NAVER by 10.2% to KRW540,000, reflecting upward adjustments to the valuation of the commerce business (lower discount placed on peer average EV/GMV) and reduced discount (20% vs. previous 30%) applied in valuation of the company's stake in Z Holdings. We believe the share price gap with rivals will narrow going forward, backed by expansion of the commerce business and growth of the content business.