[Click eStock] "NCSoft, Q1 Earnings Surprise Expected This Year"

Ebest Investment & Securities Issues 'Buy' Rating and 820,000 KRW Target Price... Closing Price on 19th at 687,000 KRW

[Asia Economy Reporter Kum Boryeong] Expectations have emerged predicting a performance surprise for NCSoft in the first quarter of this year.

On the 20th, according to Ebest Investment & Securities, the accounting measures taken by NCSoft in the fourth quarter of last year were analyzed as a masterstroke for the first quarter of this year.

The first accounting measure was a change in the revenue recognition method for mobile game item sales. Seong Jonghwa, a researcher at Ebest Investment & Securities, explained, "In the fourth quarter of last year, the revenue recognition method for mobile game items was changed from a sales basis to a consumption basis, causing deferred revenue effects. The largest deferred revenue effect in the fourth quarter of last year was from 'Lineage2M,' which was in its launch quarter, accounting for about 20% of the actual amount. From the first quarter of this year, the deferred revenue from the previous and following quarters for Lineage2M is expected to offset each other, significantly reducing the impact. For reference, the average daily revenue for Lineage2M in the fourth quarter of last year is estimated to be about 3.8 billion KRW. However, including the deferred revenue to the first quarter of this year, which accounts for 20%, the actual average daily revenue is considered to be about 4.8 billion KRW."

The first large-scale incentive due to the popularity of Lineage2M was pre-reflected in the fourth quarter of last year, causing a sharp increase in labor costs. Researcher Seong said, "The incentive costs for Lineage2M will also be reflected in the first quarter of this year, but the scale is expected to be smaller than in the fourth quarter of last year. The 10 billion KRW company-wide employee bonus to commemorate the launch of Lineage2M in the fourth quarter of last year was a one-time event, so labor costs in the first quarter of this year are expected to decrease significantly compared to the previous quarter."

Researcher Seong added, "Sales in the first quarter of this year are expected to surge compared to the previous quarter, and operating expenses are expected to stabilize, so the operating profit margin in the first quarter of this year will improve significantly, and operating profit will increase substantially compared to the previous quarter. Considering the accounting measures in the fourth quarter of last year and the strong performance of Lineage2M, a performance surprise is expected in the first quarter of this year."

Ebest Investment & Securities gave NCSoft a 'Buy' investment opinion with a target price of 820,000 KRW. The closing price on the 19th was 687,000 KRW.