[Click eStock] "Netmarble, No Strong One-shot but... Profit Normalization Starts from 3Q"

Reflecting New Titles' Performance Including The Second Country... Expected to Escape 'Earnings Shock'
SpinX Consolidation from 4Q... Multiple New Titles Also Awaiting Launch

Netmarble New Headquarters 'G Tower' Exterior View (Provided by Netmarble)

[Asia Economy Reporter Minwoo Lee] Netmarble, which experienced an 'earnings shock' in the second quarter of this year, is expected to begin a full-scale profit normalization process starting from the third quarter. It is analyzed that performance improvement will be achieved based on the effects of new releases and marketing cost efficiency.

On the 7th, Hyundai Motor Securities maintained a 'buy' investment opinion and a target price of 156,000 KRW for Netmarble, citing these reasons. The closing price on the previous day was 126,000 KRW.

Hyundai Motor Securities forecast that Netmarble will record consolidated sales of 656.1 billion KRW and operating profit of 75.4 billion KRW in the third quarter of this year. Compared to the same period last year, sales are expected to increase by 2.1%, while operating profit is expected to decrease by 13.7%. This indicates a recovery from the 'earnings shock' in the second quarter, when operating profit sharply dropped by 80.29% year-on-year to 16.1 billion KRW.

It is analyzed that the reflection of new titles' performance and marketing cost efficiency will be effective. Hyundai Motor Securities analyst Hyunyong Kim said, "'Ni no Kuni' is fully reflected in the quarterly results, contributing 13% to sales, and the newly released title last month, 'Marvel Future Revolution,' is also expected to make a meaningful contribution with solid sales." He added, "Even when combining the marketing costs of Marvel Future Revolution and the prepayments related to new releases in the fourth quarter, costs are expected to slightly decrease compared to the previous quarter, leading to a profit normalization with an operating profit margin of 11.5%."

The outlook for the fourth quarter is even brighter. The recently acquired social casino company SpinX, purchased for about 2.5 trillion KRW, will be consolidated from the fourth quarter, adding an average quarterly sales of 150 to 200 billion KRW and operating profit exceeding 50 billion KRW. Analyst Kim explained, "The expected return on equity (ROE) of the SpinX acquisition deal is 14% (assuming an average interest cost of 2.5% on borrowings of 1.78 trillion KRW), which significantly exceeds Netmarble's pre-acquisition ROE of 5-6%." He also noted, "Several additional new titles such as Seven Knights Revolution, Seven Knights 2 (overseas), and Merge Kuya Island (overseas) are waiting until the end of the year."

Attention should also be paid to the expansion beyond gaming. Netmarble has already attempted to expand its scope outside the gaming industry by making proactive equity investments in KakaoBank, HYBE, and Coway. The investment gains alone have reached several hundred billion KRW. Analyst Kim said, "Netmarble has recently established Metaverse Entertainment and signed a memorandum of understanding (MOU) with Studio Dragon, aggressively diversifying its business by utilizing its intellectual property (IP)." He added, "In particular, since strategic collaboration is possible with CJ Group and HYBE, there is a high possibility of long-term revaluation of Netmarble."