[Click eStock] NHN Faces Sharp Short-Term Uncertainty Due to Qoo10 Incident... Neutral

Investment Opinion Downgraded from 'Short-term Buy' to 'Neutral'

Shinhan Investment Corp. downgraded its investment opinion on NHN from 'Trading BUY' to 'Neutral' on the 28th, citing a sharp increase in short-term uncertainty due to the Qoo10 incident. No target price was provided.

Kang Seok-oh, a researcher at Shinhan Investment Corp., explained, "Although profitability improvement is positive, the Qoo10 incident has caused a surge in uncertainty, which is estimated to have a significant impact on earnings per share (EPS), negatively affecting valuation. Therefore, we downgraded our investment opinion." He added, "In the short term, investor sentiment will be shaped more by the resolution of the incident and the speed of identifying the scale of unrecovered receivables than by the profit size."

NHN recorded operating revenue of 599.4 billion KRW in the second quarter of this year, an 8.7% increase compared to the same period last year, and operating profit of 28.5 billion KRW, up 36.3%, exceeding the consensus operating profit (average securities firm forecast) of 24.6 billion KRW. The gaming segment declined due to the base effect of overseas existing titles' events from the previous quarter. Researcher Kang analyzed, "Web board and casual game sales remain stable, but delays in new releases continue, and the number of titles expected to be released annually is insufficient, so it will take time to achieve top-line growth." The payment and advertising segment recorded a revenue TPV of 1.5 trillion KRW per quarter contributed by Payco sales. Kang said, "Deficit improvement is progressing as planned, and corporate welfare solution sales grew by 32%, validating the strategy to expand revenue-contributing transaction volume." He added, "Payco proactively recognized a bad debt of 10.2 billion KRW due to the Qoo10 incident, and the impact on Payco and KCP will continue into the third quarter." Furthermore, he noted, "The technology and content segment has seen an improved atmosphere in the public sector compared to the second half of last year, and the private sector benefits from price increases and competitors' market share dispersion. Content is showing growth with stabilized webtoon sales and NHN Link benefiting from the popularity of professional baseball."

He advised that an approach is needed after the uncertainty is resolved. Researcher Kang stated, "The scale of unrecovered receivables due to the Qoo10 incident is estimated to be significant enough to affect EPS and valuation, so we recommend approaching after the uncertainty is resolved."