Growth Path Identified, but Achievement Will Take Time
The author is an analyst of NH Investment & Securities. He can be reached at jaemin.ahn@nhqv.com. -- Ed.
Having declared its aim to become a technology company, NHN is striving to transform itself by channeling investments toward related businesses such as cloud, AI, and commerce ventures. We positively view its strategy of expanding into market segments offering high mid/long-term growth potential. But, it will take time for these efforts to translate into EV appreciation as related sales volume is not yet as large and profitable.
Growth path identified, but achievement will take time
- We maintain a Hold rating and a TP of W80,000 on NHN. With its technology ventures yet to contribute significantly to margins, NHN’s overall profitability remains mostly reliant upon its cash-cow game division. However, its payment gateway, commerce, and cloud domains are continuing to record double-digit sales growth. If these new businesses sustain top-line expansion over the mid/long term and start showing profitability, overall profit growth should follow.
- Looking at NHN’s game division, web-board games continue to generate stable earnings, but the firm’s mobile game arm is showing sluggish sales due to the aging of existing titles such as LINE Disney TsumTsum, Crusaders Quest, and Yo-Kai Watch: Wibble Wobble. That said, the division’s sales should rebound in 2H21 in line with the upcoming launches of GUNS UP! Mobile (tower defense) and Dragon Quest Keshi Keshi (puzzle).
- Meanwhile, NHN PAYCO is sticking firm to its strategy of targeting offline markets, including via PAYCO Order, meal coupon services, and PAYCO Campus Zone. However compared to online services, these businesses consume more time and expenses to increase the numbers of affiliated merchants and enhance consumer usability. Furthermore, in the absence of a platform, NHN’s online business lacks growth potential and scalability compared to its competitors.
2Q21 review: Reports sluggish earnings
- On a consolidated basis, NHN announced 2Q21 sales of W461.7bn (+14.0% y-y, +0.4% q-q) and OP of W23.8bn (-10.0% y-y, -18.3% q-q), with OP missing both our estimate of W27.9bn and consensus of W27.5bn. The firm’s web-board game offerings showed stable sales growth in the wake of the introduction of cross-play between mobile and PC versions of titles, but OP was sapped by the decreased mobile sales. We positively view the fact that the company’s commerce and technology businesses both positing record-high quarterly sales, continuing to deliver brisk top-line growth.