[Click e Stocks] Netmarble, New Releases and Investments Both in Uncertainty

[Asia Economy Reporter Junho Hwang] Daishin Securities urgently needs a hit from new releases and has cut Netmarble's target stock price by 38% (to 80,000 KRW) on the 16th.

The main reason is a roughly 32% downward revision of earnings estimates due to delays in new game launches. Daishin Securities lowered Netmarble's estimated operating profit for this year from 282.4 billion KRW to 191.7 billion KRW. They also reduced the equity value of investment assets by 27% to reflect the recent stock price decline. Specifically, they assumed the equity value of HYBE at 1.2 trillion KRW, NCSoft at 795.8 billion KRW, and Coway at 926.4 billion KRW, totaling 2.9606 trillion KRW in investment asset equity value.

The first quarter results this year turned to a loss due to the absence of new releases combined with increased expenses. Netmarble's first quarter revenue rose 10.7% year-on-year to 631.7 billion KRW. Operating loss was recorded at 11.9 billion KRW. This performance fell short of market expectations. The increase in labor costs due to subsidiary consolidation in the fourth quarter of last year led to a decline in first quarter results.

The second quarter of this year is also expected to be challenging. Since new games are scheduled to launch at the end of the second quarter, the reflection period for game performance will be insufficient, while marketing expenses are expected to increase. This is the basis for anticipating that significant earnings improvement in the second quarter will be difficult. During the second quarter, five games including The Second Country and Golden Bros are expected to be released, and a total of eight games including Seven Knights Revolution (July) and Overprime are expected to launch.

The contribution of the blockchain business to earnings is expected to be minimal. Netmarble updated the already released game A3 in March to incorporate blockchain, but it is estimated that the daily sales rebound was only about 100 million KRW, a negligible level.

Researcher Jieun Lee of Daishin Securities stated, "Since the performance of released games fell short of market expectations, the success of new releases should be prioritized," and added, "A conservative approach is necessary until the success of new releases is confirmed."