[Click eStock] "Krafton Lowers 2Q Earnings Estimates... Optimistic for Second Half"

[Asia Economy Reporter Lee Jung-yoon] Eugene Investment & Securities announced on the 29th that it has lowered the target price for Krafton from the previous 430,000 KRW to 360,000 KRW due to downward revisions in earnings estimates. However, the buy rating was maintained.

Krafton's sales for the second quarter of this year are expected to increase by 0.5% year-on-year to 461.7 billion KRW, while operating profit is forecasted to decrease by 3.1% to 168.8 billion KRW. The operating profit fell short of the consensus estimate of 195.3 billion KRW. The PC version of Battlegrounds, which was made free at the beginning of the year, maintained the increased traffic from the first quarter into the second quarter, so PC sales are expected to be similar to those in the first quarter. It is analyzed that the game will enter a full-scale monetization phase starting from the third quarter.

In the mobile segment, sales are expected to decline compared to the previous quarter due to a decrease in sales of Hwapyungjeongyeong, which had been in its peak season in the first quarter. Operating expenses are expected to increase due to higher commission fees from hosting the Thailand PNC (PUBG Nations Cup) this month compared to the first quarter, while stock compensation costs are expected to be minimal as the current stock price has not significantly changed since the end of March.

Additionally, Krafton's overseas development subsidiary, Striking Distance Studios (SDS), has confirmed the PC and console release of its new horror TPS (third-person shooter) game, "The Callisto Protocol," on December 2. The in-game footage released has received positive reviews from users. Representative games in a similar genre include Capcom's "Resident Evil" series and EA's "Dead Space" series, which have a distinct fan base due to the genre's characteristics.

Jung Eui-hoon, a researcher at Eugene Investment & Securities, stated, "Most of the officially tracked sales for the Resident Evil series have exceeded 2 million copies, and 'Resident Evil 7,' released in 2017, recorded a blockbuster success with cumulative sales exceeding 10 million copies." He added, "Considering this, we estimate the fourth-quarter sales of The Callisto Protocol to be 1 million copies, with cumulative sales reaching 5 million copies by 2023."