Korea’s Leading Gaming Gear Manufacturer
The author is an analyst of NH Investment & Securities. He can be reached at
esshim@nhqv.com. -- Ed.
ABKO is Korea’s leading gaming gear manufacturer. With the complete lifting of social distancing, the firm should benefit from the normalizing of business at PC rooms. Replacement demand for home PCs should also rise on a downturn in graphics card prices. Continued earnings growth is expected moving forward on the back of strong operating leverage effects and an earnings turnaround driven by cost structure improvement.
Absolute leader in domestic gaming gear market
As the domestic leader in gaming gear, ABKO manufactures and sells a variety of gaming equipment, including keyboards, headsets, mice, and PC cases. In addition, the company has entered the small-sized home appliance market via the launch of its OHELLA brand. Of note, it is also supplying smart device chargers via the smart school project (led by the Ministry of Education (MOE)).
Peak seasonality arriving for PC rooms; favorable business environment ahead
Last year, ABKO’s gaming gear sales fell 16.4% y-y due to sluggish business at PC rooms and lackluster PC replacement demand. In 2022, however, sales at the gaming gear division are forecast to climb 13.4% y-y amid a normalizing of business at PC rooms thanks to the complete lifting of social distancing (announced Apr 18). Of note, PC room utilization rate is already showing recovery, and if social distancing remains absent throughout the summer vacation season (peak seasonality), PC room business should display additional recovery. As the leading player in the domestic PC room gaming gear industry with a market share of over 80%, ABKO is poised to benefit from the opening of new PC rooms and an expansion of infrastructure investment.
In addition, demand for home PC replacement is projected to rise going forward on the recent drop in graphics card prices, update to Windows 11, and conversion to DDR5. We believe that the tendency to purchase new peripheral equipment when replacing a PC will act as a tailwind for the company.
ABKO appears well-positioned to enjoy operating leverage effects from sales growth, thanks to cost structure improvement driven by labor cost cuts and a scaling back of the small home appliance business. Moving forward, earnings at the firm are expected to ramp up each quarter to culminate in 2022 sales of W125bn (+22.8% y-y) and OP of W11bn (TTP y-y). Believing that ABKO has seen both its earnings and share price pass the bottom, we suggest taking a look at expectations for sound business in the days ahead.