[Click eStock] "Netmarble, Relative Overvaluation Compared to Corporate Value is a Burden"

SpinX Games Excluded from Consolidation, Sales Growth Slightly Weak
EBest Investment "Netmarble Target Price Lowered from 155,000 KRW to 145,000 KRW"

[Asia Economy Reporter Byungseon Gong] Netmarble is expected to post fourth-quarter results last year that exceed market consensus, thanks to the consolidation of SpinX Games. However, Ebest Investment & Securities lowered its target stock price considering that the company is relatively overvalued compared to its valuation.

On the 13th, Ebest Investment & Securities maintained its 'Buy' rating on Netmarble but lowered the target price by 6.5% from the previous 155,000 KRW to 145,000 KRW. The closing price on the previous day was 114,000 KRW.

The fourth-quarter results last year are expected to meet the consensus. Ebest Investment & Securities estimated Netmarble's fourth-quarter revenue last year at 792.8 billion KRW, a 30.6% increase from the previous quarter, and operating profit at 88.4 billion KRW, a 232.1% increase over the same period. These figures exceed the respective consensus by 1.45% and 14.06%.

However, there could be a significant estimation error. This performance includes the consolidation of SpinX Games, a social casino game company acquired in August last year. SpinX Games' fourth-quarter revenue last year is estimated to be around 190 billion KRW, with operating profit around 50 billion KRW. Additionally, amortization expenses related to purchase price allocation (PPA) are expected to be about 10 billion KRW.

Seong Jonghwa, a researcher at Ebest Investment & Securities, said, "The acquisition price was 2.5 trillion KRW, but it is unknown how much the book value is, how much of the difference is intangible assets, and what portion will be recognized as PPA. However, considering the life cycle of social casino games, the amortization period is expected to be longer than the usual 5 to 6 years."

Excluding the consolidation effect of SpinX Games, Netmarble's revenue growth is somewhat sluggish. Ebest Investment & Securities estimated Netmarble's fourth-quarter revenue last year, excluding SpinX Games, at 600.4 billion KRW, a 1.1% decrease from the previous quarter, and operating profit at 48.5 billion KRW, an 82.3% increase over the same period.

Overvaluation relative to valuation is also a burden. Researcher Seong explained, "Considering relative overvaluation, it is not yet a preferred stock within the gaming sector. To alleviate valuation pressure, the company needs to demonstrate differentiated competitiveness from other companies in new growth businesses that attract market interest, such as successful major new releases, efficient cost management, blockchain-based Play to Earn (P2E), and metaverse."