[Click eStock] "Netmarble Escapes Corporate Valuation Pressure... Needs to Manage Decline in Existing Games"

Ebest Investment & Securities Report

[Asia Economy Reporter Gong Byung-sun] Ebest Investment & Securities maintained a target price of 142,000 KRW and a 'Hold' investment rating on Netmarble on the 16th, expecting the company's value to be appropriately evaluated from this year, but noted the need to manage the decline in revenue from existing games.

Netmarble's corporate value is expected to fall within a reasonable range starting this year. The price-to-earnings ratio (PER) based on controlling shareholders' earnings per share (EPS) was excessively high at 51 times from 2017 to 2019 and 41 times last year, but it is expected to drop to the high 20s this year. When calculating value separately using the sum-of-the-parts (SOTP) method by business division, the profit value PER is expected to fall to the mid-20s this year.

Accordingly, it is anticipated that responses to new game release schedules will become possible. Sung Jong-hwa, an analyst at Ebest Investment & Securities, explained, "The burden of corporate value evaluation is lifted, allowing for responses to new game release schedules." Major new releases this year include 'Blade & Soul: Revolution' and 'NBA Ball Stars' scheduled for global release in the first quarter. In the second quarter, 'The Second Country' will be launched in Korea, Japan, and Taiwan. In the second half of the year, 'Seven Knights Revolution' will be released in Korea and Japan, and 'Marvel Future Revolution' is planned for global release excluding China.

However, there are concerns about managing the decline in revenue from existing games. 'Seven Knights 2,' released in Korea in the fourth quarter of last year, ranked third in Google revenue rankings throughout the quarter, but the other three new titles?'Seven Knights Time Wonderer,' 'A3: Still Alive,' and 'Marvel Realm of Champions'?did not perform significantly. As a result, fourth-quarter revenue last year was 623.9 billion KRW, down 2.9% year-on-year, and operating profit was 82.5 billion KRW, down 5.6%. Both revenue and operating profit fell short of market consensus.

Analyst Sung said, "Even if a big hit new release contributes to large-scale new revenue, if existing game revenue declines, it may be difficult for new release momentum to operate," adding, "The decline in revenue from existing games must be managed at a level much smaller than the contribution of new revenue from big hit new releases."