Turnaround expectations rise

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The author is an analyst of NH Investment & Securities. He can be reached at jaemin.ahn@nhqv.com — Ed.

Although quarterly operating losses have continued since 1Q22, the launch of new games not only in Korea but also overseas (especially in China upon gaining publishing rights from China’s National Press and Publication Administration) should continue from 2Q23. We expect to see a turnaround in operating income from 3Q23, led by sales of these new games.

Focus on new games, China publishing momentum, and operating income turnaround

Maintaining a Buy rating, we raise our TP on Netmarble from W60,000 to W75,000. Although operating losses have continued since 1Q22, the firm is expected to turn to profit from 3Q23.

Based on publishing rights received from the Chinese government in Dec 2022, four games (A3: Still Alive, Shop Titans, Ni no Kuni: Cross Worlds, StoneAge) will likely be released in China over 2Q23~3Q23, which should boost the company’s royalty income. China momentum should continue to build, with a number of games that are contracted with Tencent (including Lineage 2: Revolution and Blade & Soul Revolution) also likely to receive approval.

Meta World: My City, which is set to be released globally in May, includes P2E-based NFTs. We expect the title to achieve sound results in the casual gaming market, noting the success of a previous title using the same IP. Expectations should also build for the release of new games such as Arthdal Chronicles and Solo Leveling: ARISE in 2H23.

Netmarble’s market cap reflects the value of its stakes in Coway, HYBE, and NCSOFT, and its P/E is lofty due to its sluggish non-operating profit and foreign currency related losses. That said, considering new game momentum, we believe that the stock boasts sufficient upside potential.

1Q23 preview: Operating losses continue

We forecast 1Q23 sales of W661.8bn (+4.8% y-y, -3.6% q-q) and an operating loss of W19.0bn (RR), in line with consensus (-W16.0bn). It will likely be difficult for the company to turn to profit in 1Q23 owing to a lack of new game releases during the quarter and the aging of existing games. However, we forecast that sales will rebound from 2Q23 on new game releases.

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