[Click eStock] "Netmarble, with external tailwinds exhausted, must now compete through games"

3Q Earnings Expected Slightly Weak... Operating Profit 68 Billion KRW, Down 16.8% YoY
Kakao Games, Big Hit Listing Momentum Fades... "Time to Compete Head-On with New Releases"

[Asia Economy Reporter Minwoo Lee] As the listings of Kakao Games and Big Hit Entertainment, in which it holds shares, are completed, the external factors that had driven Netmarble's stock price are disappearing. Analysts say that the success of new game releases is essential to sustain the rising stock price.

On the 19th, Ebest Investment & Securities forecast that Netmarble would record consolidated sales of 632.5 billion KRW and operating profit of 68 billion KRW in the third quarter. Sales increased by 2% compared to the same period last year, but operating profit decreased by 19.5%. Compared to the previous quarter, performance is expected to be somewhat sluggish, with sales projected to fall by 7.8% and operating profit by 16.8%.

In the second quarter, 'The Seven Deadly Sins' achieved a surprise hit overseas, resulting in unexpected strong performance, but in the third quarter, new releases were somewhat lackluster, leading to a 'breather' phase. Netmarble released two new titles in the third quarter: 'Magumagu 2020' (domestic, July 8) and 'BTS Universe Story' (overseas, September 24). Seong Jong-hwa, a researcher at Ebest Investment & Securities, explained, "Magumagu 2020 recorded considerable success, but due to the overall downward stabilization of many other games, third-quarter sales are expected to decline compared to the previous quarter. Although marketing expenses will decrease significantly compared to the previous quarter, labor costs will slightly increase, so the reduction rate in operating expenses will not exceed the sales decline rate, resulting in a larger decrease in operating profit than in sales compared to the previous quarter."

The fourth quarter, which will see the release of multiple new titles, is critical. Sales from the globally released 'BTS Universe Story Global' at the end of last month will be fully reflected, and new releases such as 'Seven Knights 2' (domestic release), 'A3: Still Alive', 'Seven Knights Time Wonderer', and 'Marvel Realm of Champions' are scheduled one after another. There is a forecast that these new titles could enable a performance rebound.

Meanwhile, analysts suggest that Netmarble must now compete based on its core business, moving away from the previously favorable stock price environment. Until just before Kakao Games' listing, the success of titles like 'The Seven Deadly Sins' and 'A3: Still Alive', along with the concentration of multiple new release schedules in the second quarter, combined with a very favorable investment environment created by the listings of Kakao Games and Big Hit Entertainment since last month, drove the stock price up. Now, the momentum from hit new titles has been exhausted, and the investment company listing momentum has also been depleted since Kakao Games' listing. Researcher Seong said, "Now, even after actively reflecting the value of major investment companies, valuation capacity is tight, so it is necessary to see whether the dilemma of overvaluation can be resolved depending on the success of major new releases scheduled for the fourth quarter."

Against this backdrop, Ebest Investment & Securities lowered Netmarble's target stock price by 4.1% to 142,000 KRW and maintained a 'Neutral (HOLD)' investment rating. The previous trading day's closing price was 136,500 KRW.