Game Business Earnings Improvement Encouraging
The author is an analyst of NH Investment & Securities. He can be reached at jaemin.ahn@nhqv.com. -- Ed.
NHN’s margins are inevitably to deteriorate in 2022 due to increased labor costs and marketing expenses. But, web-board game deregulation should spur sales growth, and the firm has a number of new titles in the works.
Game business earnings improvement is encouraging
- Adhering to a Hold rating, we lower our TP on NHN from W40,000 to W35,000. We draw attention to some positive momentum factors, including: 1) likely revenue growth in response to deregulation of web-board game businesses; 2) promising initial sales for GUNS UP! Mobile; and 3) NHN’s plans to roll out a number of new mobile games in 2H22. But, both a recent IT industry-wide labor cost uptrend and higher marketing costs (due to the expansions of the firm’s web-board game business and PAYCO’s offline domain) are to sap annual OP this year. Reflecting such, we downwardly adjust our OP estimates for 2022, in turn lowering our TP.
- Earnings traction should finally set in at NHN’s game division on both the impact of web-board game business deregulation and the company’s new game release plans. Seven new titles are scheduled to be launched within this year (including #Compass LiveArena, AA Poker, Wemix Sports, Wooparoo NFT, and Darkest Days).
- With subsidiary Acommate’s Chinese business recently being affected by lockdowns of major cities (to control the spread of Covid-19), sales at NHN’s commerce domain are inevitably to weaken from 2Q22.
- Also looking unavoidable are higher marketing costs stemming from both new games launches and brand marketing activities for Hangame. Moreover, with the pandemic crisis easing, Payco’s offline business traffic should rise, in turn pushing up related costs.
1Q22 review: OP comes in tepid
- NHN registered consolidated 1Q22 sales of W520.5bn (+15.2% y-y, -4.6% q-q) and OP of W15.5bn (-38.2% y-y, -37.8% q-q), with OP arriving well below our estimate of W29.3bn and consensus of W26.4bn on increased labor and marketing expenses. Game sales improved to W108.8bn (+5.6% q-q) thanks to peak seasonality (1Q) for the firm’s web-board game business. But, payment/advertising sales fell to W209.2bn (-7.0% q-q), weighed upon by off-seasonality (1Q).