[Overseas Stocks Spotlight] "Nexon Highlights Growth Potential with Dungeon & Fighter Mobile Launch in China"

[Asia Economy Reporter Eunmo Koo] The investment points for Nexon (NEXON·3659 JP), a domestic game company listed on the Japanese stock market, were highlighted as its high growth potential in the Chinese game market and the re-emergence of growth in the Korean mobile game market. The possibility of mergers and acquisitions (M&A), share buybacks, or increased dividends in the second half of this year is also considered noteworthy.

On the 25th, KB Securities researcher Asim Hussein forecasted in a report that Nexon's stock price level would rise to a higher stage due to growth from the launch of Dungeon & Fighter Mobile in China. Since March 2017, China has halted the approval of game licenses for Korean companies such as Nexon. Researcher Hussein stated, “Dungeon & Fighter Mobile, which is being released in China through the local partner Tencent, recorded over 60 million pre-registrations by the originally scheduled release date of August 12, but the launch was delayed due to local youth protection regulations,” adding, “With a year-end release expected, the stock price is likely to show an upward trend.”

As the existing PC game is released on mobile, performance growth centered on Korean sales is expected. Researcher Hussein explained, “Unlike overseas markets where sales are expected to decline in the second half of this year, domestic sales (accounting for 49% of total sales in the first half) are expected to increase by 74% compared to last year,” and added, “85% of domestic game users have experience purchasing paid items within games, which is higher than the overseas average of 38%.” He also noted, “Considering the relatively low proportion of mobile games in the domestic market, an increase in mobile share is expected to provide performance momentum in the future.”

To offset concerns about the delay in the Dungeon & Fighter launch, there is also an assessment that M&A, share buybacks, and dividend increases may be pursued. Researcher Hussein analyzed, “Nexon holds $4.5 billion in cash, which corresponds to 20% of its market capitalization and is twice the industry average of 10%,” and added, “The leverage ratio is 1.2 times, lower than the industry average of 1.7 times, so there seems to be no need to increase debt burden when implementing shareholder return policies.”

However, risks were pointed out including further delays or cancellation of the Dungeon & Fighter Mobile launch in China, intensified price competition within the industry, and a sharp decline in game playtime due to early development of COVID-19 vaccines.