Aims to Release Black Desert Mobile in China Within 2021
The author is an analyst of Shinhan Investment Corp. He can be reached at mj1224@shinhan.com. -- Ed.
New game momentum to continue with Black Desert Mobile (China launch) and Crimson Desert
PearlAbyss shares have gained 31.5% since the company received a license to launch the mobile version of Black Desert in China. Even after the recent rally, share valuations are still seen undemanding given continuing new game momentum. The company started working on localization of the new mobile game even before securing the license, and aims to release Black Desert Mobile in China within this year. The launch of Crimson Desert, one of the most-anticipated games at the moment, will come soon after that in 2022. Expectations remain upbeat for Black Desert’s success in China, with both the online and mobile versions of the game ranking in the top-three most-anticipated games in China, according to 17173.com. We expect daily average sales of the new mobile game in China to reach KRW3bn levels at the start, before settling around KRW1.5bn-2bn levels in 2022.
Meanwhile, the launch of Crimson Desert will likely be postponed from 4Q21 to 2022, with: 1) work-from-home orders extended amid the continuing spread of COVID-19; and 2) development resources allocated mainly to the localization of Black Desert Mobile upon license approval for release in China.
Nevertheless, we believe PearlAbyss will be able to keep expectations high among potential users and investors until the actual launch of Crimson Desert through the release of more in-game trailers, tests and other marketing efforts. PearlAbyss was not included in the first list of participants revealed for Gamescom 2021 (August 25-27), one of the world's largest gaming events, but the company could still join the trade show that will be held entirely online this year. If not, we highly expect the company to hold its own press event around that time, at the end of August.
2Q21OP to come in short of consensus at KRW7.4bn (-44% QoQ)
Operating profit is estimated at KRW7.4bn (-43.9% QoQ) for 2Q21, missing market consensus of KRW17.5bn. Despite the shift to self-publishing for PC online games in North America and Europe, overall sales likely inched up by just 5% QoQ on weaker performance of mobile games. Sluggish earnings are also attributable to an increase in labor costs (incentive payments, etc.).
Upgrade to BUY and raise target price to KRW100,000
Our rating for PearlAbyss is upgraded to BUY from Trading BUY, with the target price raised to KRW100,000 in reflection of forecasts for earnings in China following license approval on Black Desert Mobile. Despite possible delays in the launch of new games such as Crimson Desert, upbeat expectations should remain intact thanks to pre-launch marketing efforts (in-game trailers, etc.). Rising expectations for upcoming China releases should also help to ease concerns over a possible slowdown in momentum.