[Click eStock] "NHN Structural Profitability Deterioration"... Target Price Down 15%

[Asia Economy Reporter Ji Yeon-jin] Ebest Investment & Securities announced on the 11th that it lowered its profit forecast for NHN, considering the structural deterioration in profitability, and cut the target stock price by 15% from the previous 47,000 KRW to 40,000 KRW. However, the investment opinion was maintained as a buy.

Seong Jong-hwa, a researcher at Ebest Investment & Securities, said, "The stock price is undergoing a significant correction due to unfavorable external factors such as the revaluation of growth stock corporate value related to tightening and internal issues of structural profitability deterioration," and "the board game regulation easing in May-June and the new product launch schedule after the third quarter need attention, and quarterly performance is expected to improve from the first quarter of this year as the bottom."

The company's consolidated sales in the first quarter of this year decreased by 4.6% from the previous quarter to 520.5 billion KRW, and operating profit during this period decreased by 37.8% to 15.5 billion KRW. Game sales increased thanks to the strong performance of board games during the Lunar New Year peak season in the first quarter, but non-game sales decreased by 6.6% compared to the previous quarter due to off-season effects in payment, advertising, commerce, and technology sectors, as well as a pause in NHN Comico in the content sector and a base effect from the previous quarter’s performance peak of NHN Link. In addition, labor costs increased by 5.3% compared to the previous quarter despite the base effect from year-end incentives, due to 5-10% salary raises, one-time welfare expenses of 2 billion KRW, and increased quarterly incentives for NHN Korea Cyber Payment, and marketing expenses also rose by 2.6% despite no new product launches in the first quarter, driven by Hangame branding marketing targeting the web board game peak season and expanded Payco strategic merchant marketing.

However, there are six new product launches scheduled, including four games in the second half of this year, and there is a high possibility that the partial amendment to the Enforcement Decree of the Game Industry Promotion Act related to the board game regulation easing by the Ministry of Culture, Sports and Tourism will be implemented as early as this month or at the latest next month, which could be a positive factor. This third round of regulation easing includes key regulatory relaxations that have a significant effect on sales rebound, such as raising the monthly purchase limit for game money from 500,000 KRW to 700,000 KRW and increasing the single betting limit from 50,000 KRW to 70,000 KRW, similar to the first easing.