[Click eStock] "Shift Up: Lower Industry Appeal and Lack of New Titles Lead to Downgraded Rating and Target Price"

Investment Rating Downgraded from "Buy" to "Neutral"
Target Price Lowered from 59,000 Won to 43,000 Won

On January 12, Meritz Securities downgraded its investment opinion on Shift Up from "Buy" to "Neutral," and lowered its target price from 59,000 won to 43,000 won, citing a decline in the attractiveness of the gaming industry.

Lee Hyojin, a researcher at Meritz Securities, stated, "Based on the second-half performance of 'Nikke' in China, we have revised down our 2026 operating profit forecast by 9%. Reflecting the fact that the company will have to rely solely on Nikke in 2026, we removed the valuation premium, lowering the multiple from 24 times to 17 times." She added, "The declining appeal of the industry means that bottom calls are no longer effective."

Shift Up's fourth-quarter results last year are expected to fall short of market expectations. Lee forecasted, "Shift Up's fourth-quarter revenue will reach 64.9 billion won, up 2.2% year-on-year, while operating profit will decrease by 12.8% to 40.3 billion won, slightly missing market consensus." She further explained, "Although sales of 'Stellar Blade' exceeded expectations in the second and third quarters, the sales ranking of Nikke in China fell rapidly."

As the appeal of the gaming industry has weakened, maintaining existing titles is no longer a compelling investment point. Due to the domestic game companies' focus on mobile platforms, there has been a structural barrier to foreign capital inflows. Even companies that have seen some improvement in their results have not experienced a rebound in share price, leading to valuation derating (declining price-to-earnings ratios). Lee noted, "Domestic game companies rely on institutional demand, but since late August last year, as artificial intelligence (AI) infrastructure stocks began to rebound, institutional demand has quickly exited the gaming sector." She continued, "The diminished attractiveness of the industry has concentrated investments on a select few with momentum, and from this perspective, Shift Up, which has no new releases scheduled for 2026, is unlikely to be a priority."

'Stellar Blade 2' and 'Project Spirit' are expected to be released after 2027, meaning that in 2026, the company will have to rely solely on Nikke to sustain its revenue. Lee commented, "To turn the situation around, the emergence of an unexpected new title this year and an improvement in industry supply and demand appear necessary."