[Click eStock] "Krafton, Q1 Earnings Surprise... Expecting Q2 as Well"

Eugene Investment & Securities Report

[Asia Economy Reporter Minji Lee] Eugene Investment & Securities maintained a buy rating and a target price of 430,000 KRW for Krafton on the 13th, based on expectations of strong performance in the second quarter as well.

In the first quarter, Krafton's sales amounted to 523 billion KRW, and operating profit reached 311.9 billion KRW, representing growth of 13.5% and 37.3% respectively compared to the same period last year. The operating profit significantly exceeded estimates (171.6 billion KRW) and market expectations (192.1 billion KRW).

PC PUBG sales grew by 60.6% year-on-year as traffic tripled compared to the previous quarter following the free-to-play launch in January. In the mobile segment, the peak season effect of Peacekeeper Elite in China and revenue growth from BGMI (Battlegrounds Mobile India) were key contributors. For New State, recent user traffic recovery has been confirmed, but meaningful revenue growth has yet to be observed.

Operating expenses also decreased significantly, with commission fees dropping sharply compared to last year due to the absence of last year's esports tournament hosting. Researcher Jeong Hee-hoon of Eugene Investment & Securities explained, "Since Krafton's stock price declined after the fourth quarter of last year, the stock compensation cost, which was 59 billion KRW in the previous quarter, was reversed by 53.2 billion KRW, greatly boosting the operating profit margin."

Strong performance is expected to continue into the second quarter. Considering that PC PUBG's paid product sales, such as starter and reward packages with relatively low profitability, were high immediately after the free-to-play launch in January, performance growth is anticipated in the second quarter when these packages are depleted. For mobile, although Peacekeeper Elite's revenue is expected to decline compared to the peak first quarter, BGMI's revenue growth remains effective, and the impact of the PUBG Mobile collaboration event held at the end of March is expected to keep the decline minimal compared to the first quarter.

Researcher Jeong said, "It will be difficult to maintain the high margin rate seen this quarter due to future stock compensation costs and the year-end esports tournament hosting," adding, "However, the annual margin rate this year has improved significantly compared to last year."

He further added, "Since the releases of Project M and The Callisto Protocol, scheduled for the second half of the year, are unlikely to be delayed, it is reasonable to expect new title momentum through the second half."