[Featured Stock] Kakao Games Faces Current Price Pressure "4% Plunge Amid Target Price Downgrade Humiliation"

[Asia Economy Reporter Lee Seon-ae] On the morning of the 7th, Kakao Games' stock price is showing a 4% decline. It is interpreted that the downward revision of the target price report is influencing the stock price drop.

As of 9:04 AM, Kakao Games is trading at 39,950 KRW, down 4.31% from the previous trading day. It recorded a low of 39,750 KRW.

On this day, Ebest Investment & Securities stated that in a situation where both earnings momentum and valuation momentum are sluggish, it is necessary to monitor the impact of Lionheart Studio's initial public offering (IPO) on the stock price and to establish future investment response strategies. While maintaining a buy rating, they also lowered the target price by 15.7%, from 70,000 KRW to 59,000 KRW. Furthermore, the current stock price corresponds to a price-to-earnings ratio (PER) of 21.4 times based on the 2023 controlling shareholder earnings per share (EPS), which is considerably higher than the average of major domestic game stocks, making the valuation burdensome. They emphasized that the market consensus earnings forecast is too high, which also poses a burden in terms of earnings momentum.

Seong Jong-hwa, a researcher at Ebest Investment & Securities, said, "Kakao Games' third-quarter revenue is expected to decrease by 2.2% quarter-on-quarter to 331.4 billion KRW, and operating profit is expected to drop by 30.7% to 56.1 billion KRW, significantly missing the consensus (market average forecast). This is due to underperformance compared to expectations for key games such as 'Uma Musume Korea' and 'Odin Korea, Taiwan,' and the increase in major operating expenses is due to structural factors rather than one-time events. Therefore, the outlook for the third quarter as well as beyond the fourth quarter will be significantly revised downward."

Meanwhile, individual investors of Kakao Games are expressing discomfort regarding Lionheart's listing. Lionheart is the developer of Kakao Games' flagship game 'Odin,' which is a core game for Kakao Games, leading to controversy that the corporate value will inevitably be damaged. Over the past two years, Kakao has successively listed its subsidiaries: Kakao Games in September 2020, Kakao Bank in August 2021, and Kakao Pay in November 2021. Since then, the stock prices of both the parent company Kakao and its affiliates have plummeted, increasing losses for individual investors. Accordingly, Kakao is not free from the perception that it is spinning off successful businesses to benefit only major shareholders. If Lionheart also enters the stock market, the double counting controversy is bound to intensify.