[Click eStock] "Naver, Core Business Recovery and Exclusion of Line from Consolidated Accounting... Profit Improvement Accelerates"

[Asia Economy Reporter Park Jihwan] Daishin Securities maintained its 'Buy' rating and target price of 350,000 KRW for NAVER on the 23rd, anticipating a full-scale profit improvement due to core business recovery and the exclusion of LINE.

Lee Mina, a researcher at Daishin Securities, stated, "From the third quarter, LINE will be excluded from consolidated sales and operating profit and recognized as a non-operating discontinued business loss," adding, "We plan to re-estimate the earnings by reflecting the accounting standards changes after the third-quarter earnings announcement."

With the exclusion of LINE from consolidation, earnings are expected to improve significantly from the third quarter. The third quarter sales under the existing accounting standards are expected to be 1.98 trillion KRW, a 19% increase year-on-year, and operating profit is expected to increase by 385% to 279 billion KRW.

Advertising revenue is expected to grow 20% year-on-year due to strong smart channel sales, and steady growth in NAVER Shopping transaction volume is expected to continue despite the impact of the novel coronavirus (COVID-19). Growth is also expected in business platform sales (12%) and IT platform sales (68%).

Researcher Lee Mina explained, "With the Japanese government's approval of the LINE-Yahoo joint venture finalized, LINE will be excluded from consolidated sales and operating profit from the third quarter," adding, "The previously estimated operating loss of LINE for the third and fourth quarters was around 80 billion KRW per quarter, and simply excluding this would improve operating profit to 357.7 billion KRW and 381.7 billion KRW for the third and fourth quarters, respectively." Future losses from LINE are expected to be reflected as non-operating discontinued business losses, and after the joint venture is established in March next year, equity-method gains will be recognized.

The researcher forecasted, "The disclosure of quarterly data for major businesses such as Shopping, Pay, and Webtoon will enable a more intuitive evaluation of business performance, which is expected to have a positive impact on the stock price."