[Click eStock] "Netmarble, 2Q Earnings Meet Low Expectations... Target Price ↓"

[Asia Economy Reporter Lee Myunghwan] Hyundai Motor Securities announced on the 21st that it maintains a buy rating on Netmarble but lowers the target price by 9% from the previous 110,000 KRW to 100,000 KRW. This is due to lowered earnings estimates caused by a decline in sales of existing games amid the absence of major new releases.

Hyundai Motor Securities projected Netmarble's Q2 revenue to increase by 13.8% year-on-year to 656.9 billion KRW, while operating profit is expected to decrease by 35.2% to 10.5 billion KRW. Revenue is forecasted to be 2.4% below market expectations, and operating profit is expected to barely meet the sharply lowered market forecasts. Excluding the effect of consolidating SpinX as a subsidiary, revenue is estimated to have decreased by 12% year-on-year. Operating margin is expected to be only 1.6% due to a sharp increase in operating expenses, mainly labor costs.

Hyundai Motor Securities evaluated that the second half earnings hinge on the new releases scheduled for the end of this month. Netmarble's key new titles for the second half include 'Seven Knights Revolution,' 'Modoo Marble: Meta World,' and 'Overprime.' Seven Knights Revolution, launching on the 28th, is the third lineup developed using its own intellectual property (IP), following Seven Knights and Seven Knights 2. Hyundai Motor Securities emphasized that the success of Seven Knights Revolution is crucial for sales growth to offset cost burdens. Previously, Seven Knights 2 maintained a top 5 sales ranking for four months after release, achieving nearly 200 billion KRW in annual sales.

Hyundai Motor Securities also noted that Netmarble is actively pursuing new businesses such as the metaverse and NFTs (non-fungible tokens). Through its affiliate Metaverse Enter, three digital humans have been unveiled. These can be utilized as characters within Netmarble games or debut as a virtual idol group. The metaverse VFX (visual effects) research center, to be completed within the year, plans to internally secure technologies such as motion capture, chroma key, and full-body scanning, applying them to gaming and metaverse businesses.

Hyun-yong Kim, a researcher at Hyundai Motor Securities, stated, "The target price downgrade is due to lowered earnings estimates caused by declining sales of existing games amid the absence of major new releases. Although a short-term stock price rebound is possible with the July release of Seven Knights Revolution, a sustained rise will be difficult due to a sharp decline in valuation attractiveness caused by poor earnings."