Company August 9, 2012

Game NCsoft (036570 KS) Daewoo Securities Co., Ltd. Chang-kwean Kim Pay attention to presales volume of 2 CDs +822-768-4321 [email protected] Maintain Buy call with TP of W420,000; Expectations for Guild Wars 2 intact

We raised our 2012 EPS estimate for NCsoft by 0.6% (while lowering our 2013 EPS estimate by 0.1%) to reflect the companyÊs 2Q results. We expect NCsoftÊs shares

to experience boosts, as: 1) the companyÊs future value is likely to draw attention again on the back of the commercial launches of Guild Wars 2 in the US and Europe, and 2) uncertainties surrounding the companyÊs controlling shareholder change are likely to dissipate. Buy (Maintain) Target Price (12M, W) 420,000 NCsoft reaffirmed its plans to commercially launch Blade & Soul and Guild Wars 2 in Share Price (08/08/12, W) 224,000 major markets (e.g., China, Japan, Taiwan, the US, and Europe) through 2013. As Expected Return (%) 87.5 such, we believe that the companyÊs earnings will improve through 2013. We EPS Growth (12F, %) 47.8 maintain our Buy call with a target price of W420,000. Market EPS Growth (12F, %) 13.2 P/E (12F, x) 27.4 2Q Review: Swung to negative due to one-off expenses Market P/E (12F, x) 10.0 KOSPI 1,903.23 NCsoft swung to negative for the first time in six years in 2Q due to one-off Market Cap (Wbn) 4,904 expenses related to the layoffs of around 400 employees (W15bn) and a jump in Shares Outstanding (mn) 22 marketing expenses owing to new game launches. The companyÊs 2Q operating Avg Trading Volume (60D, '000) 335 loss (W7.6bn) missed the consensus (operating profit of W6bn) but was better than Avg Trading Value (60D, Wbn) 80 our previous projection (operating loss of W9bn). Dividend Yield (12F, %) 0.4 Free Float (%) 76.3 NCsoftÊs 2Q revenues increased 4.0% QoQ. Aion revenues declined 31.3% QoQ, 52-Week Low (W) 203,000 while I revenues leaped 33.9% QoQ. We think that revenues related to 52-Week High (W) 386,000 these established games were affected by whether or not the company held related Beta (12M, Daily Rate of Return) 0.68 micro transaction events (rather than by external factors such as fresh competition). Price Return Volatility (12M Daily, %, SD) 3.1 Foreign Ownership (%) 44.9 NCsoft made it clear that it would resume its micro transaction sales for Aion in 3Q. Major Shareholder(s) NEXON Co., Ltd.(14.7%) Guild Wars 2 to become a new momentum driver T,J. Kim et al. (10.41%) NCsoft is scheduled to launch focus group testing for Blade & Soul in China on NPS (9.19%) August 16th via Tencent (a Chinese publisher). Thousands of gamers are likely to Price Performance take part in the testing. We expect the fruits of NCsoftÊs rigorous localization efforts (%) 1M 6M 12M Absolute -12.8 -17.3 -28.3 (e.g., translation into Chinese) to be revealed during this process. Relative -15.3 -12.3 -30.1 Meanwhile, we believe that Guild Wars 2 (developed by US-based ArenaNet) will Key Business A computer game company focusing on become the companyÊs new momentum driver. NCsoft is scheduled to MMORPG commercially launch Guild Wars 2 on August 28th. Pre-purchasers will gain access to the game starting on August 25th. The game recently topped the list of most popular games at a US website (MMORPG.com) and ranked second in terms of expectations at a Chinese website (17173.com; trailing only Blade & Soul).

Share price FY Revenues OP OP Margin NP EPS EBITDA FCF ROE P/E P/B EV/EBITDA 130 KOSPI (Wbn) (Wbn) (%) (Wbn) (Won) (Wbn) (Wbn) (%) (X) (X) (X)

110 12/10 660 174 26.3 144 6,602 243 187 20.8 31.6 6.3 16.3 12/11 609 135 22.2 121 5,529 161 -120 15.1 55.6 8.1 38.7 90 12/12F 837 222 26.5 179 8,174 225 -245 18.9 27.4 4.9 20.7 70 12/13F 1,106 469 42.5 369 16,852 474 355 30.5 13.3 3.6 9.1

50 12/14F 1,229 563 45.8 449 20,537 568 426 28.3 10.9 2.8 6.9 8/11 12/11 4/12 8/12 Notes: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests Source: Company data, KDB Daewoo Securities Research estimates

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In our view, the presales volume of Guild Wars 2 CDs should be a key determinant for the gameÊs success. Generally speaking, in the first two months following an online gameÊs release in the US and Europe, sales volume tends to be three times higher than presales volume.

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