[Click eStock] "Kakao Games, Target Price Lowered from 30,000 to 25,000 Won"

Meritz Securities lowered the target price of Kakao Games from 30,000 KRW to 25,000 KRW on the 9th.

Kakao Games' consolidated sales and operating profit for the first quarter were 246.3 billion KRW and 12.3 billion KRW, respectively, in line with expectations.

Despite the release of the new title 'Rom', marketing expenses were tightly controlled, resulting in game business profits similar to the previous quarter, but losses in the non-game business sector, centered on golf, expanded.

Although amortization expenses in the first quarter significantly decreased due to intangible asset impairment losses in the fourth quarter, labor costs increased compared to the previous quarter, reflecting the 2024 salary raise rate.

Kakao Games announced plans to manage marketing expenses at around 6% of sales in 2024.

The company leveraged its strengths in domestic publishing to acquire stakes in developers and expand its influence. Recently, the number of companies challenging global publishing businesses based on their own strong regions has been increasing. Krafton is a representative example, and other companies with abundant cash reserves are also establishing business strategies in the same direction.

They continue to focus on MMORPG (Massively Multiplayer Online Role-Playing Games) and have announced a pipeline based on stakes in overseas developers acquired through investments in non-MMRPGs.

The foundation of this approach was Kakao Games' previously abundant cash holdings.

However, it was evaluated as regrettable that additional investment capacity has somewhat diminished due to the recent early redemption request of convertible bonds, which shifted the capital structure to debt.

It is a period when it is difficult to expect improvement in ROIC (Return on Invested Capital) of the game publishing business, so reducing losses in the non-game sector could be a key point for performance improvement for the time being.

Researchers Lee Hyojin and Kang Hara said, "Reflecting changes in performance, we lower Kakao Games' fair stock price from 30,000 KRW to 25,000 KRW," adding, "Publishing investment results should be expected after 2025."