[Click eStock] "Krafton, Growth Potential Up with Studio Acquisition"

Heungkuk Securities Report
Target Price Set at 590,000 Won

[Image source=Yonhap News]

[Asia Economy Reporter Minji Lee] Heungkuk Securities maintained a buy rating on Krafton on the 30th and set a target price of 590,000 KRW for the first time. This is based on the judgment that the acquisition of a stake in Unknown Worlds has increased growth potential.

Krafton recorded sales of 521.9 billion KRW in the third quarter, a 42% increase compared to the same period last year. Operating profit grew 16% to 195.3 billion KRW, surpassing the market expectation of 185.4 billion KRW. Mobile sales increased quarter-on-quarter due to the continued growth of PUBG Mobile and the launch effect of BGMI, and the average revenue per user rose significantly with the release of new maps and growth-type weapon BM. Despite increased labor costs due to staff expansion and higher marketing expenses for new titles, operating profit showed growth.

The company announced at the end of last month that it would acquire 100% of Unknown Worlds for 500 million USD. Although strong in the shooting genre, Krafton lacked a hit open-world title, and it is expected that the personnel and know-how of Unknown Worlds, which developed Subnautica and Natural Selection, will be utilized for new open-world IP development and expansion of the PUBG universe. Seok-oh Kang, a researcher at Heungkuk Securities, said, “Because the characteristics of games and user preferences vary clearly by platform and genre, having specialized personnel for each platform and genre development means having competitiveness in terms of long-term portfolio diversification,” adding, “Therefore, it was the best choice available for a company that needs to expand into new IPs and genres after PUBG.”

PUBG holds overwhelming recognition in the global battle royale genre and is evenly distributed across regions with many users and high revenue. Accordingly, the company’s target price-to-earnings ratio (PER) is 25 times, which is considered reasonable compared to other major global groups’ PERs. Researcher Kang explained, “It is also positive that the company has evolved into an enterprise that generates stable cash flow from PUBG and can acquire studios with excellent development capabilities to develop and launch major sequels.”