Web-board Game Regulations Eased
The author is an analyst of NH Investment & Securities. He can be reached at jaemin.ahn@nhqv.com. -- Ed.
At NHN, bottom-line is likely to slow in 2022 due to both increased labor costs and a significant hike in marketing costs. However, the business environment is displaying favorable changes thanks to the easing of web-board game regulations and rise in offline activities.
Valuations high amid cost increase
- Although adhering to a Hold rating, we lower our TP on NHN from W35,000 to W31,000. In 2Q22, marketing cost execution led to a significant drop in OP and increase in P/E valuation. However, the environment surrounding its major businesses (eg, gaming, payments, and cloud) is changing for the better.
- Helped by sluggish performances at peers, the web-board game business (which is benefitting from a July hike in web-board game payment limit) is enjoying a rise in market share. In 2H22, both sales and market share should strengthen further on an improvement in awareness for Hangame driven by rebranding marketing (featuring famous actors Cho Seung-woo, Lee Byung-hun, and Jung Woo-sung). In July, web-board game sales climbed 40% y-y and 22% m-m, which should have a positive impact on the company’s 3Q22 earnings.
- As offline activities pick up on the entering of the endemic phase, transaction volume at Payco (strengths in offline payments) is accelerating. In 2Q22, transaction amount totaled W2.3tn (+36% y-y), displaying the highest pace of growth since the onset of Covid-19 in 2020.
- NHN Link is also predicted to see sales growth thanks to the increasing participation in out-of-the-home activities such as concerts and sports. Synergies with Payco should also materialize.
2Q22 review: OP comes in tepid
- NHN registered consolidated 2Q22 sales of W511.3bn (+12.8% y-y, -1.8% q-q) and OP of W5.2bn (-73.9% y-y, -66.5% q-q), with OP arriving well below our estimate of W18.6bn and the consensus of W15.4bn. Marketing costs jumped significantly to W37.4bn (+78.1% y-y, +36.4% q-q). Advertising costs also increased due to rebranding marketing for the web-board game business. Marketing costs related to Payco widened as well on efforts to activate the offline payment business.