[Click eStock] Netmarble, China License + Turnaround + Rock Bottom

Yuanta Securities resumed its analysis on Netmarble on the 16th with a 'Buy' investment rating and a target price of 82,000 KRW. This is based on the issuance of Chinese game licenses and new game releases, which are expected to enable a performance turnaround in the second half of the year. Moreover, the current stock price is at a rock bottom. Rock bottom refers to a stone deep in the sea, meaning the lowest stock price. Based on the previous day's closing price (56,300 KRW), there is a 46% upside potential compared to the target price.

Researcher Changyoung Lee of Yuanta Securities stated, "Netmarble has the highest profitability among domestic listed game companies, but due to low synergy from completed mergers and acquisitions (M&A), it has approximately 2.7 trillion KRW in net borrowings, interest expenses, and operating losses from goodwill amortization, resulting in a price-to-sales ratio (PSR) of 1.6 times," adding, "With the full-scale launch of games in China in the second half, the possibility of a turnaround in the latter half is high."

Netmarble plans to service four games that obtained Chinese licenses last year starting from the second half of this year. Additionally, it will release a total of nine newly developed games based on well-known intellectual properties (IP) that have already proven successful or have high loyalty this year. Lee explained, "The target price of 82,000 KRW reflects the full-scale launch of games in China from the second half," and added, "The valuation was calculated by applying a 10% discount to the average 2023 EV/EBITDA multiple of domestic and international game companies, which is 11.3 times, to the company's estimated 2024 EBITDA, and by applying the 2023 expected sales multiplied by the average 2023 PSR of 2.7 times for domestic and international game companies, reflecting the company's high profitability (85% overseas sales). The target price is the average of these values."

Last year, the Chinese game market recorded negative growth for the first time in 10 years. However, it is now expected that under Xi Jinping's third term, the government will promote the game industry to stimulate domestic demand and create jobs, and fintech company support measures will be actively implemented. At the Hangzhou Asian Games in September this year, e-sports will be officially adopted as an event for the first time, which is expected to change the previously one-sided trend of game regulation.

Netmarble's new game lineup for the first half of this year includes 'Modoo Marble 2,' which has 200 million users worldwide, and 'Tower of God,' based on a webtoon with 4.5 billion cumulative views. In the second half, 'Solo Leveling,' which utilizes a webtoon IP with 14.2 billion views, is scheduled for release. Games serviced in China include 'A3,' 'Shop Titan,' and 'The Second Country.' Lee pointed out, "Netmarble has the highest number of new game releases among game companies this year."

Netmarble is also accelerating cost efficiency. The cumulative labor cost growth rate slowed sharply from 47% in the third quarter of last year to 9% in the fourth quarter. Lee emphasized, "All nine new games released this year are self-developed, and the proportion of commission fees relative to sales is expected to continue to decline," adding, "With continued cost efficiency and the addition of sales from nine new games and four games serviced in China, a performance turnaround is possible in the second half."