Kakao Games Europe Acquires Lionheart Studio
The author is an analyst of NH Investment & Securities. He can be reached at jaemin.ahn@nhqv.com. -- Ed.
With the acquisition of a majority stake in Lionheart Studio, the developer of hit title Odin, Kakao Games is to bolster its development capabilities and secure significant earnings growth (as the new subsidiary’s earnings are to be reflected on consolidated basis). The acquisition should serve as an opportunity for Kakao Games to target the global market in earnest.
Strengthens development power by exercising call option on Lionheart Studio
- Adhering to a Buy rating, we raise our TP on Kakao Games from W120,000 to W130,000. We expect the firm’s recent acquisition of a majority stake in Lionheart Studio, the developer of Odin: Valhalla Rising, to bolster its development capabilities, significantly boost its earnings, and initiate full-fledged overseas business expansion.
- On Nov 1, Kakao Games announced that its wholly-owned subsidiary, Kakao Games Europe BV, has acquired an additional 30.37% stake in Lionheart Studio for W450bn (advance payment), in turn becoming the majority shareholder with a total stake of 51.95%. In addition, as Lionheart Studio’s major shareholders are to participate in Kakao Games’ equity offering and become shareholders (3.6% stake) in it, the strategic agenda of Lionheart Studio and Kakao Games are to align, enabling responsible management.
- Via this recent development, Kakao Games will incorporate Lionheart Studio’s earnings on a consolidated basis. Given such, we boost 2022F OP from W241.8bn to W408.3bn and 2022F NP (excluding minority interests) forecast from W303.9bn to W381.9bn, raising our TP in accordance to W130,000. Currently trading at a 2022F P/E of 15.6x, we view Kakao Games’ shares as being undervalued versus rivals.
Anticipation building towards global performance of Kakao Games Europe and Odin
- Until recently, Kakao Games possessed the publishing rights to Odin only in Korea and Taiwan, but the acquisition now entitles it to the global business rights for the hit title, a factor which should build anticipation toward meaningful earnings overseas. Of note, the announcement comes a few days following the appointment of Namgoong Hoon (the co-CEO of Kakao Games) as the CEO of Kakao Games Europe, further fueling expectations towards global expansion.
- In particular, as Kakao Games Europe has acquired Lionheart Studio, the company will be able to actively execute business related to non-fungible tokens (NFTs), which are drawing keen market interest as of late. Moving ahead, the application of NFT technology within Odin appears rather likely.