Bad News Is Now All Behind
The author is an analyst of NH Investment & Securities. He can be reached at jaemin.ahn@nhqv.com. -- Ed.
Krafton’s share price is visibly starting to reflect expectations for the release of Callisto Protocol slated for December. We also look forward to new titles being developed by subsidiary UnKnown World—related information is likely to be unveiled at the Gamescom gameshow in August.
Bad news is now all behind
We maintain a Buy rating and a TP of W350,000 on Krafton. With Callisto Protocol, the most anticipated new title this year, set to be released on Dec 2, related share price momentum should build gradually. An official name and introduction video for Project M (developed by subsidiary UnKnown World) is to be unveiled at Gamescom in August.
Considering that 2Q is traditionally its lowest season of the year, Krafton’s sales should rebound this quarter in line with 3Q peak seasonality. With large-scale updates scheduled in 3Q22, the firm’s top line is well situated to recover. Various marketing activities to be carried out ahead of the launch of Callisto Protocol in December should help spur market expectations towards the new game.
While BGMI is currently suspended from download on app stores, if downloads of the game resume, such a development would be deemed as good news. Of note, India accounts for around 10% of Krafton’s sales and about 5~7% of its OP. We view the effects of the suspension issue as already being baked into the company’s share price.
2Q22 review: OP disappoints expectations
Krafton posted consolidated 2Q22 sales of W423.7bn (-7.8% y-y, -19.0% q-q) and OP of W162.3bn (-6.8% y-y, -48.0% q-q), with OP missing both our estimate of W170.2bn and consensus of W167.0bn.
In 2Q22, the company’s PC sales totaled W88.6bn (+0.0% y-y, -16.5% q-q), remaining flat y-y. But, traffic rose in line with a change over to the free version of a major title. Mobile sales came to W319.7bn (-9.7% y-y, -19.3% q-q), a healthy level when stripping off last year’s one-off sales.
In 3Q22, the services ban in India will likely have some impacts. And, we expect marketing expenditure to increase in line with rollouts of new games. We forecast 3Q22 OP of W157.4bn