Time to Be Viewed as AI Service Play
The author is an analyst of NH Investment & Securities. He can be reached at kyeongkeun.kang@nhqv.com. -- Ed.
ESTsoft’s main businesses, its software and game divisions, are posting steady earnings growth. The company is also generating meaningful results at its new AI services domain. Given such, we believe that ESTsoft needs to be re-evaluated as an AI service provider. We note that the firm has a stable business structure and sound financials.
Earnings growth stable at software and game businesses
ESTsoft’s utility software ALTools boasts more than 30mn users, encompassing companies, government organizations, and individuals. The firm has developed TeamUp 3.0, a solution to support remote working, an increasing trend since the outbreak of Covid-19. Backed by the expansion of both ALYac and ALTools license sales and ad sales, software business sales should remain on the rise, with 2021 sales estimated at W38.9bn (+18.3% y-y).
ESTsoft is expected to enjoy new game momentum driven by the planned rollout of CABAL Mobile in the Philippines. Of note, the game topped the App Store charts in Thailand within a day of its release, and it has since remained a top-five game in the country. ESTsoft successfully carried out a CBT for CABAL Mobile over Jul 14~17 in the Philippines, aiming to launch the game within 4Q21. We forecast that the game business will book 2021 sales of W29.1bn (+20.9% y-y).
Time to be viewed as AI service play
ESTsoft has been achieving meaningful results at its new AI service domain. Having established AI Plus Lab in 2017, the firm won the third place prize in the Ministry of Science and ICT’s AI Content event in Jun 2020, and it also secured Digital New Deal AI projects worth W10bn in Oct 2020. In addition to owning proprietary technology for virtual human creation (ESTsoft-created AI anchor once featured on YTN News), the company has launched ROUNZ services, an AI/AR-based glasses shopping platform, along with its subsidiary Deep-I.
ESTsoft’s 52% stake in its listed subsidiary ZUM Internet is valued at W94.7bn, and 2021 net cash is estimated at W19.8bn. Given that ESTsoft’s market cap remains at only W169.7bn, we believe that the firm deserves valuation rerating to reflect the software/game businesses and its subsidiary Deep-I (an unlisted AI commerce company). It also needs to be reevaluated as an AI service provider. For anyone who is looking for an AI-related investment candidate with a stable business structure and sound financials, we advise keeping an eye on ESTsoft.