Upbeat on Rise in Investment Asset Value
The author is an analyst of Shinhan Investment Corp. He can be reached at mj1224@shinhan.com. -- Ed.
Upbeat on rise in investment asset value and strong release of new game
We find the increase in value of investment assets positive, with recent share price gains for Coway (021240 KS) and Hive Entertainment (352820 KS) leading to a decline in valuation burden for Netmarble. The value of the company's stake in Kakao Bank, although small, should add to overall momentum once the internet-only bank goes public on August 5.
Strong initial market response to Cross Worlds, released on June 10, is also encouraging with the new game ranking third in gross sales on iOS and Google Play charts at home. Despite the decline in gross sales rankings in Japan, one of the major markets for mobile games, we believe the success of the new game will help to offset the decline in sales from existing games.
Expectations are rising for upcoming releases as well, with MARVEL Future Revolution revealed on June 29 and pre-registrations carried out on a global scale. We believe the current marketing schedule points toward a 4Q21 release of the game, and expect a simultaneous launch in 240 countries (excluding China and Vietnam). Created in collaboration with comic book writer Marc Sumerak, who had worked on the Avengers series at Marvel, the game is highly expected to appeal to Marvel Cinematic Universe fans.
2Q21 OP estimated at KRW51.2bn (-5.6% QoQ)
We now expect Netmarble to report sales of KRW640.1bn (+12.2% QoQ) and operating profit of KRW51.2bn (-5.6% QoQ) for 2Q21. Despite strong sales generated from Cross Worlds over the first 21 days from release, overall operating profit should have slipped on a QoQ basis due to the decline in sales from existing games such as The Seven Deadly Sins: Grand Cross and the increase in expenses from large-scale marketing efforts. With marketing spend likely to stabilize downward from the high levels recording around the release of the new game, overall earnings are expected to improve from 3Q21. We project operating profit at KRW98.7bn for 3Q21 with daily average sales from Cross Worlds assumed at KRW1.2bn.
Retain BUY and raise target price by 10% to KRW165,000
We raise our target price for Netmarble by 10% to KRW165,000, reflecting the increase in value of investment assets and subsequent decline in valuation burden. Adding to new game momentum with game titles based on popular IP assets such as MARVEL Future Revolution slated for release in 2H21, a further boost is expected from the upcoming IPO of Kakao Bank.
Meanwhile, risks include the downward stabilization of sales from Cross Worlds. Daily average sales of the new game are forecast at KRW1.2bn for 3Q21, marking a 40% drop from KRW2bn estimates seen over the past week.