Target Price Raised by 10.3% Compared to Previous Level
On the 16th, KB Securities raised the target price for Kakao from 68,000 KRW to 75,000 KRW, anticipating that profitability improvement through management reform will be fully realized. The investment rating was maintained as 'Buy.'
Researcher Lee Seonhwa of KB Securities explained, "The main reason for the target price increase is the upward revision of operating profit estimates for 2024 and 2025 by 7.6% and 2.3%, respectively, as the effects of workforce restructuring since the second half of last year and profitability improvement through management reform, including a reduction in losses from new initiatives, are expected to be fully reflected."
Kakao's fourth-quarter results last year exceeded market expectations. On a consolidated basis, Q4 revenue increased by 23.0% year-on-year to 2.1711 trillion KRW, and operating profit rose by 108.7% to 189.2 billion KRW. Lee said, "Operating profit consensus (average securities firm forecast) was 151.7 billion KRW, which was exceeded," and analyzed, "Along with strong performance in the high-margin advertising business, personnel cost on a separate basis decreased by 31.3 billion KRW quarter-on-quarter due to workforce restructuring, resulting in Kakao's separate operating profit of 197.1 billion KRW, indicating fundamental improvement." Additionally, consolidated subsidiaries achieved profitability in the music, story, and media business sectors through management efficiency efforts, and new initiatives reduced operating losses by 21.4 billion KRW quarter-on-quarter due to the restructuring of the enterprise cloud business. However, net profit recorded a loss due to goodwill and purchase price allocation (PPA) impairments related to subsidiaries such as SM.
This year, it is expected that Kakao will focus on strengthening its fundamentals. Lee forecasted, "This year, Kakao will prioritize core businesses over external expansion and focus on solidifying its foundation. The new initiatives business, which recorded an annual operating loss of about 220 billion KRW last year due to resource efficiency efforts by consolidated subsidiaries, is expected to reduce its operating loss to around 120 billion KRW this year. The TalkBiz division of KakaoTalk, which underwent innovative restructuring last year, is expected to contribute to margin improvement alongside a recovery in the advertising market this year."
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