Changed Strategy and New Game Momentum

The author is an analyst of NH Investment & Securities. He can be reached at jaemin.ahn@nhqv.com. -- Ed. 

 

Although sales of NCSOFT’s existing games are on the decline, expectations are set to rise on the release of information related to both TL (scheduled to be launched in 2H22) and the firm’s 2023 lineups.

Changed strategy and new game momentum

- We maintain a Buy rating on NCSOFT but lower our TP from W600,000 to W550,000. With Lineage W entering a phase of downward earnings stabilization, quarterly earnings are likely to decline this year. However, expectations should climb in relation to Throne and Liberty (TL), which is to be aimed at the global console market upon its expected release in 4Q22.

- YouTube trailers for upcoming console title TL (set for release in 4Q22) are receiving a good response, and expectations should rise further on the roll-out of additional pre-release videos at game shows held in 2H22. In addition, the global version of Lineage W and the Taiwan/Japan version of Blade & Soul 2 (B&S 2) are on track for launch. Although expectations remain tame, related sales contribution should prove tangible.

- From 2022, NCSOFT has been pursuing open R&D in its introduction of new games, taking a strategy of revising development direction based on user feedback prior to the launch of new titles. In the past, the company had a strategy of proceeding in secret up until release. We favorably view this change in strategy, given the recent cases of a positive consensus failing to form around new works among younger audiences. Information related to projects E/R/M (2023E) are to materialize sequentially from 2H22.

2Q22 preview: Quarterly earnings stabilizing downward

- NCSOFT is predicted to post 2Q22 sales of W649.9bn (+20.7% y-y, -17.8%   q-q) and OP of W146.4bn (+29.9% y-y, -40.0% q-q), with OP falling short of both our previous estimate of W160.2bn and the consensus of W165.1bn. With sales of Lineage W now on the decline six months after the game’s launch, overall sales erosion looks inevitable. For June, Lineage M sales are estimated at W124.0bn (-7.6% y-y, +7.0% q-q). Despite the passing of five years since the title’s release, sales of Lineage M remain stable.

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