Anticipation Building towards China Launch
The author is an analyst of NH Investment & Securities. He can be reached at jaemin.ahn@nhqv.com. -- Ed.
Although we inevitably lower our earnings estimates due to delayed release of Crimson Desert, new title momentum continues to build in the run-up to the releases of Black Desert Mobile (China) in 4Q21 and Crimson Desert in 2022.
Anticipation building towards China launch
- We maintain Buy on Pearl Abyss. Although the release of Crimson Desert has been delayed from 2021 to 2022, anticipation toward the new title still remains high, and Black Desert Mobile (China) is to be launched within 2021.
- Although the Crimson Desert rollout schedule has been delayed to 2022, the decision does not stem from a development issue, but from Covid-19 effects. Momentum will build as the company unveils a video teaser in 2H21. After acquiring a license from the Chinese government in Jun 2021, Black Desert Mobile is scheduled for launch within 2021. We expect the title will yield positive results in China based upon the contents accumulated over the past four years. Furthermore, video clips featuring the company’s new titles (including DokeV) are to be showcased at the Gamescom 2021, scheduled for Aug 25.
- In 2022, Pearl Abyss is expected to generate sales of W834bn (+113.5% y-y) and OP of W306bn (+880.9% y-y). As the performance of Black Desert Mobile (China) and Crimson Desert are both reflected from 2022, we expect earnings to climb significantly from 2021.
- However, we lower our TP from W100,000 to W90,000. Due to delayed Crimson Desert release, we have adjusted related sales to be reflected from 3Q22, instead of our original 4Q21 assumption. Our new TP of W90,000 was calculated by applying the game industry average P/E of 25x to the company’s 2022F NP (excluding minority interests).
2Q21 review: Earnings arrive below expectations
- Pearl Abyss reported 2Q21 sales of W88.5bn (-32.8% y-y, -12.3% q-q) and operating losses of W6bn (TTL y-y and q-q). OP fell short of both our estimate of W25.6bn and consensus of W13.4bn. Although the firm started directly servicing Black Desert in North America/Europe region, sales came in tepid due to deferred sales, and mobile game sales fell sharply to W21.2bn (-62.5% y-y). On top of that, labor costs increased on the booking of one-off incentive payouts totaling W10bn.