Preparing for Multiple Lineups in 2H22
The author is an analyst of NH Investment & Securities. He can be reached at jaemin.ahn@nhqv.com. -- Ed.
Kick-started by Odin’s success in Taiwan, Kakao Games’ new lineup momentum is being revived. With four large-scale new games (including Umamusume) set to be released, earnings growth expectations are to rise.
Preparing for multiple lineups in 2H22
- We maintain a Buy rating on Kakao Games. Sales of Odin (released on Mar 29 in Taiwan) should rise in 2Q22, and Umamusume Pretty Derby is scheduled for launch in 2Q22, which in turn should provide new sales growth momentum. In 2H22, earnings growth predictions are to strengthen in line with the rollout of several new titles (including Eversoul, Disterra, Ares: Rise of Guardians, and XLGames New Title).
- Starting with Umamusume, a number of new games are slated for release in 2H22. With Kakao Games to unveil several new games in which it has been investing earnestly over the past few years, earnings growth momentum looks primed to strengthen again.
- A number of P2E games using BORA coins are also being prepared for launch this year, starting with the Kakao Friends IP-based Birdie Shot.
- However, we lower TP from W115,000 to W90,000. Odin is performing well in Taiwan, but we cut our OP projections due to falling sales of Odin in Korea. Overall labor cost hikes in the game industry are also factored into our decision.
1Q22 review: Earnings disappoint, but expect rebound from next quarter
- Kakao Games registered consolidated 1Q22 sales of W266.3bn (+104.7% y-y, -7.1% q-q) and OP of W42.1bn (+169.7% y-y, -7.4% q-q). OP missed both our estimate of W56.0bn and consensus of W49.3bn on both falling sales of Odin in Korea and heftier marketing/labor costs due to the launch of Odin in Taiwan. That said, sales of Odin in Taiwan are to be prominently reflected in 2Q22, and earnings should also be conditioned by the upcoming release of Umamusume. We forecast overall 2Q22 sales of W366.7bn (+183.2% y-y, +37.7% q-q), and OP of W78.4bn (+867.1% y-y, +86.2% q-q).