[Korea] Games February 15, 2021

Netmarble Buy (251270 KS) (Maintain)

Steady flow of new releases and hit titles TP: W170,000 Upside: 23.2%

Mirae Asset Daewoo Co., Ltd. Chang-kwean Kim [email protected] HeeSeok Lim [email protected]

4Q20 results miss consensus New releases (Seven Knights 2 and A3) have positive effects, but overseas revenue declines  For 4Q20, Netmarble reported revenue of W623.9bn (+12% YoY) and operating profit of W82.5bn (+61% YoY).  The results were below our expectations and the consensus (revenue of W678.5bn and operating profit of W86bn).  The company maintained a well-balanced portfolio, with RPGs accounting for 33% of revenue, MMORPGs 31%, and casual games 24%.  Domestic revenue was supported by the success of Seven Knights 2, but overseas revenue declined QoQ.  Net profit surged 2,098% YoY to W103.3bn, driven by an increase in equity-method gains following Big Hit Entertainment’s IPO.

New release schedule for 2021 A number of new titles coming out in 2021, including Ni no Kuni (2Q21)  Netmarble is set to launch Blade & Soul Revolution and NBA Ball Stars globally in 1Q21.  Ni no Kuni is planned for simultaneous release in Korea, Japan, and Taiwan in 2Q21.  Seven Nights Revolution will come out in Korea and Japan simultaneously in 2H21.  Marvel Future Revolution is due for a global release in 2H21.

Rising value of equity holdings Maintain Buy and TP of W170,000  We revised up our 2021 and 2022 operating profit forecasts by 0.5% and 2.6%, respectively, after confirming the 4Q20 results and timeline for new releases.  Netmarble’s holdings in NCsoft, KakaoBank, Kakao Games, Big Hit Entertainment, and Coway are rising in value.  Netmarble has produced a steady stream of new releases and at least one hit title every year. We think the company’s stable content development ability merits a premium.

Key data

Current price (2/10/21, W) 138,000 Market cap (Wbn) 11,851 250 Netmarble KOSP I OP (20, Wbn) 272 Shares outstanding (mn) 86 200 Consensus OP (20F, Wbn) 275 Free float (%) 24.3 150 EPS growth (20, %) 100.1 Foreign ownership (%) 23.9

100 P/E (20, x) 36.0 Beta (12M) 0.41

50 Market P/E (20F, x) 21.5 52-week low (W) 87,000 2.20 6.20 10.20 KOSPI 3,100.58 52-week high (W) 197,500

Share performance Earnings and valuation metrics (%) 1M 6M 12M (Dec.) 2017 2018 2019 2020 2021F 2022F Absolute 3.0 -11.0 47.0 Revenue (Wbn) 2,425 2,021 2,179 2,485 3,018 3,253 Relative 4.7 -31.5 4.3 OP (Wbn) 510 242 203 272 405 512 OP margin (%) 21.0 12.0 9.3 10.9 13.4 15.7 NP (Wbn) 310 190 156 313 359 421 EPS (W) 3,898 2,226 1,823 3,649 4,185 4,907 ROE (%) 11.2 4.4 3.5 6.8 7.3 7.9 P/E (x) 48.4 50.1 50.7 36.0 33.0 28.1 P/B (x) 3.7 2.1 1.6 2.2 2.1 2.0 Div. yield (%) 0.2 0.0 0.0 0.0 0.0 0.0 Notes: Under consolidated K-IFRS; NP is attributable to owners of the parent Source: Company data, Mirae Asset Daewoo Research estimates Analysts who prepared this report are registered as research analysts in Korea but not in any other jurisdiction, including the US. PLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES AND DISCLAIMERS IN APPENDIX 1 AT THE END OF REPORT. February 15, 2021 Netmarble

Table 1. Quarterly and annual earnings (Wbn, %) 1Q20 2Q20 3Q20 4Q20 1Q21F 2Q21F 3Q21F 4Q21F 2019 2020 2021F Revenue 533 686 642 624 679 721 755 863 2,179 2,485 3,018 Domestic 155 171 164 204 222 171 203 204 726 694 800 Overseas 378 514 479 420 457 514 552 659 1,453 1,791 2,183 Mobile games 510 663 619 601 656 698 732 840 2,084 2,393 2,926 MMORPG 133 171 148 193 212 180 168 203 585 646 763 RPG 197 281 257 206 244 295 272 285 811 941 1,097 Casual 144 171 161 150 170 180 189 216 550 626 754 Other 35 39 54 52 30 42 103 137 138 180 312 Online games 8 8 7 7 7 6 6 6 37 30 24 Other 15 15 16 16 16 17 17 17 57 62 67 OP 20 82 87 83 94 110 102 100 203 272 405 OP margin 3.8 11.9 13.6 13.2 13.8 15.2 13.5 11.5 9.3 10.9 13.4 NP 58 85 93 103 85 85 95 126 170 339 391 Net margin 10.8 12.4 14.4 16.6 12.5 11.8 12.5 14.6 7.8 13.6 13.0 YoY growth Revenue 11.6 30.3 3.6 12.4 27.4 5.1 17.6 38.3 7.8 14.0 21.5 Domestic -18.2 -8.5 -16.7 33.4 43.2 0.0 24.0 0.0 19.4 -4.4 15.3 Overseas 31.2 51.7 13.1 4.5 21.0 0.0 15.4 56.9 2.8 23.3 21.9 Mobile games 12.3 31.9 3.8 13.0 28.7 5.3 18.2 39.8 8.4 14.8 22.3 MMORPG -12.8 35.7 -11.7 39.4 59.0 5.1 13.8 4.9 -1.4 10.3 18.2 RPG 37.6 30.3 9.1 -4.9 24.0 5.1 5.8 38.3 26.5 16.0 16.5 Casual 15.9 35.7 -0.4 7.9 18.0 5.1 17.6 44.1 0.2 13.7 20.6 Other 6.0 12.9 67.3 37.6 -15.0 8.5 91.1 163.2 -1.1 30.7 73.3 OP -39.8 146.1 3.6 61.4 359.4 34.1 16.7 20.7 -16.2 34.3 48.9 NP 35.9 124.2 9.2 2097.9 48.1 0.0 2.3 22.4 -21.0 99.4 15.6 Source: Company data, Mirae Asset Daewoo Research estimates

Table 2. Earnings forecast revisions (Wbn, %) Previous Revised % chg. Notes 2021F 2022F 2021F 2022F 2021F 2022F Revenue 3,006 3,240 3,018 3,253 0.4 0.4 OP 403 499 405 512 0.5 2.6 NP 390 410 391 459 0.3 12.0 OP margin 13.4 15.4 13.4 15.7 - - Net margin 13.0 12.7 13.0 14.1 - - Source: Mirae Asset Daewoo Research estimates

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Netmarble (251270 KS)

Income statement (summarized) Balance sheet (summarized) (Wbn) 2019 2020F 2021F 2022F (Wbn) 2019 2020F 2021F 2022F Revenue 2,179 2,485 3,018 3,253 Current assets 2,560 2,861 3,287 3,702 Cost of revenue 0 0 0 0 Cash & equivalents 1,575 1,738 1,924 2,232 GP 2,179 2,485 3,018 3,253 AR & other receivables 154 174 212 228 SG&A expenses 1,976 2,213 2,613 2,741 Inventory 5 6 7 8 OP (adj.) 203 272 405 512 Other current assets 826 943 1,144 1,234 OP 203 272 405512 Non-current assets 3,246 3,389 3,564 3,701 Non-operating profit 15 203 104 97 Investments in associates 233 265 322 347 Net financial income 35 36 41 47 PP&E 236 238 240 241 Net income from associates 13 -28 -40 -40 Intangible assets 1,384 1,490 1,602 1,711 Pretax profit 218 475 509 609 Total assets 5,806 6,250 6,851 7,402 Income tax 49 137 118 151 Current liabilities 665 738 893 961 Profit from continuing operations 170 339 391 459 AP & other payables 100 114 139 149 Profit from discontinued operations 0 0 0 0 Short-term financial liabilities 339 367 442 475 NP 170 339 391459 Other current liabilities 226 257 312 337 Attributable to owners 156 313 359 421 Non-current liabilities 493 525 580 604 Attributable to minority interests 14 25 32 37 Long-term financial liabilities 268 268 268 268 Total comprehensive income 319 339 391 459 Other non-current liabilities 225 257 312 336 Attributable to owners 303 321 371 435 Total liabilities 1,158 1,263 1,473 1,565 Attributable to minority interests 16 17 20 23 Equity attributable to owners 4,451 4,765 5,124 5,546 EBITDA 321 393 531 642 Capital stock 9 9 9 9 FCF 302 494 595 623 Capital surplus 3,881 3,881 3,881 3,881 EBITDA margin (%) 14.7 15.8 17.6 19.7 Retained earnings 914 1,228 1,587 2,008 OP margin (%) 9.3 10.9 13.4 15.7 Minority interests 197 222 254 291 Net margin (%) 7.2 12.6 11.9 12.9 Shareholders' equity 4,648 4,987 5,378 5,837

Cash flow statement (summarized) Key valuation metrics/ratios (Wbn) 2019 2020F 2021F 2022F 2019 2020F 2021F 2022F Operating cash flow 381 534 635 663 P/E (x) 50.7 36.0 33.0 28.1 NP 170 339 391 459 P/CF (x) 23.7 19.6 19.0 16.5 Non-cash income/expenses 164 238 231 261 P/B (x) 1.6 2.2 2.1 2.0 Depreciation 36 37 38 39 EV/EBITDA (x) 20.0 24.3 18.5 14.9 Amortization 82 84 88 91 EPS (W) 1,823 3,649 4,185 4,907 Other 46 117 105 131 CFPS (W) 3,899 6,724 7,245 8,380 Chg. in working capital 45 45 78 34 BPS (W) 56,648 60,228 64,390 69,297 Chg. in AR & other receivables 35 -21 -36 -16 DPS (W) 0 0 0 0 Chg. in inventory -2 -1 -1 -1 Dividend payout ratio (%) 0.0 0.0 0.0 0.0 Chg. in AP & other payables -31 7 13 6 Dividend yield (%) 0.0 0.0 0.0 0.0 Income tax -57 -137 -118 -151 Revenue growth (%) 7.8 14.0 21.4 7.8 Cash flow from investing activities -247 -338 -427 -323 EBITDA growth (%) -0.3 22.4 35.1 20.9 Chg. in PP&E -79 -40 -40 -40 OP growth (%) -16.1 34.0 48.9 26.4 Chg. in intangible assets -25 -190 -200 -200 EPS growth (%) -18.1 100.2 14.7 17.3 Chg. in financial assets -250 -108 -187 -83 AR turnover (x) 13.2 15.8 16.2 15.4 Other 107 0 0 0 Inventory turnover (x) 516.9 453.0 466.3 441.0 Cash flow from financing activities -107 28 75 33 AP turnover (x) 0.0 0.0 0.0 0.0 Chg. in financial liabilities 221 28 75 33 ROA (%) 3.0 5.6 6.0 6.4 Chg. in equity 31 0 0 0 ROE (%) 3.5 6.8 7.3 7.9 Dividends 0 0 0 0 ROIC (%) 10.1 13.1 20.2 21.7 Other -359 0 0 0 Debt-to-equity ratio (%) 24.9 25.3 27.4 26.8 Chg. in cash 26 163 186 308 Current ratio (%) 385.2 387.6 368.2 385.1 Beginning balance 1,549 1,575 1,738 1,924 Net debt-to-equity ratio (%) -37.0 -39.3 -41.9 -44.7 Ending balance 1,575 1,738 1,924 2,232 Interest coverage ratio (x) 23.1 24.8 34.1 39.9 Source: Company data, Mirae Asset Daewoo Research estimates

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Appendix 1

Important disclosures and disclaimers Two-year rating and TP history

Company Date Rating TP (W) (W) Netmarble Netmarble (251270) 11/12/20 Buy 170,000 250,000 08/13/20 Buy 180,000 200,000 05/14/20 Buy 130,000 02/13/20 Buy 115,000 150,000 07/02/19 Buy 127,000 100,000 02/13/19 Buy 149,000 50,000

0 Feb 19 Feb 20 Feb 21

Stock ratings Sector ratings Buy Expected 12-month performance: +20% or greater Overweight Expected to outperform the market over 12 months Trading Buy Expected 12-month performance: +10% to +20% Neutral Expected to perform in line with the market over 12 months Hold Expected 12-month performance: -10% to +10% Underweight Expected to underperform the market over 12 months Sell Expected 12-month performance: -10% or worse

Rating and TP history: Share price (─), TP (▬), Not Rated (■), Buy (▲), Trading Buy (■), Hold (●), Sell (◆) * Our investment rating is a guide to the expected return of the stock over the next 12 months. * Outside of the official ratings of Mirae Asset Daewoo Co., Ltd., analysts may call trading opportunities should technical or short-term material developments arise. * The TP was determined by the research analyst through valuation methods discussed in this report, in part based on estimates of future earnings. * TP achievement may be impeded by risks related to the subject securities and companies, as well as general market and economic conditions.

Ratings distribution and investment banking services Buy Trading Buy Hold Sell Ratings distribution 78.43% 11.76% 8.50% 1.31% Investment banking services 66.67% 22.22% 11.11% 0.00% * Based on recommendations in the last 12 months (as of December 31, 2020)

Disclosures As of the publication date, Mirae Asset Daewoo Co., Ltd. has acted as a liquidity provider for equity-linked warrants backed by shares of Netmarble as an underlying asset; other than this, Mirae Asset Daewoo has no other special interests in the covered companies.

Analyst certification The research analysts who prepared this report (the “Analysts”) are registered with the Korea Financial Investment Association and are subject to Korean securities regulations. They are neither registered as research analysts in any other jurisdiction nor subject to the laws or regulations thereof. Each Analyst responsible for the preparation of this report certifies that (i) all views expressed in this report accurately reflect the personal views of the Analyst about any and all of the issuers and securities named in this report and (ii) no part of the compensation of the Analyst was, is, or will be directly or indirectly related to the specific recommendations or views contained in this report. Mirae Asset Daewoo Co., Ltd. (“Mirae Asset Daewoo”) policy prohibits its Analysts and members of their households from owning securities of any company in the Analyst’s area of coverage, and the Analysts do not serve as an officer, director, or advisory board member of the subject companies. Except as otherwise specified herein, the Analysts have not received any compensation or any other benefits from the subject companies in the past 12 months and have not been promised the same in connection with this report. Like all employees of Mirae Asset Daewoo, the Analysts receive compensation that is determined by overall firm profitability, which includes revenues from, among other business units, the institutional equities, investment banking, proprietary trading, and private client divisions. At the time of publication of this report, the Analysts do not know or have reason to know of any actual, material conflict of interest of the Analyst or Mirae Asset Daewoo except as otherwise stated herein.

Disclaimers This report was prepared by Mirae Asset Daewoo, a broker-dealer registered in the Republic of Korea and a member of the Korea Exchange. Information and opinions contained herein have been compiled in good faith and from sources believed to be reliable, but such information has not been independently verified and Mirae Asset Daewoo makes no guarantee, representation or warranty, express or implied, as to the fairness, accuracy, completeness, or correctness of the information and opinions contained herein or of any translation into English from the Korean language. In case of an English translation of a report prepared in the Korean language, the original Korean language report may have been made available to investors in advance of this report. The intended recipients of this report are sophisticated institutional investors who have substantial knowledge of the local business environment, its common practices, laws, and accounting principles, and no person whose receipt or use of this report would violate any laws or regulations or subject Mirae Asset Daewoo or any of its affiliates to registration or licensing requirements in any jurisdiction shall receive or make any use hereof. This report is for general information purposes only and is not and shall not be construed as an offer or a solicitation of an offer to effect transactions in any securities or other financial instruments. The report does not constitute investment advice to any person, and such person shall not be treated as a client of Mirae Asset Daewoo by virtue of receiving this report. This report does not take into account the particular investment objectives, financial situations, or needs of individual clients. The report is not to be relied upon in substitution for the exercise of independent judgment. Information and opinions contained herein are as of the date hereof and are subject to change without notice. The price and value of the investments referred to in this report and the income from them may depreciate or appreciate, and investors may incur losses on investments. Past performance is not a guide to future performance. Future returns are not guaranteed, and a loss of original capital may occur. Mirae Asset Daewoo, its affiliates, and their directors, officers, employees, and agents

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do not accept any liability for any loss arising out of the use hereof. Mirae Asset Daewoo may have issued other reports that are inconsistent with, and reach different conclusions from, the opinions presented in this report. The reports may reflect different assumptions, views, and analytical methods of the analysts who prepared them. Mirae Asset Daewoo may make investment decisions that are inconsistent with the opinions and views expressed in this research report. Mirae Asset Daewoo, its affiliates, and their directors, officers, employees, and agents may have long or short positions in any of the subject securities at any time and may make a purchase or sale, or offer to make a purchase or sale, of any such securities or other financial instruments from time to time in the open market or otherwise, in each case either as principals or agents. Mirae Asset Daewoo and its affiliates may have had, or may be expecting to enter into, business relationships with the subject companies to provide investment banking, market-making, or other financial services as are permitted under applicable laws and regulations. No part of this document may be copied or reproduced in any manner or form or redistributed or published, in whole or in part, without the prior written consent of Mirae Asset Daewoo. For further information regarding company-specific information as it pertains to the representations and disclosures in this Appendix 1, please contact [email protected] or +1 (212) 407-1000.

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Mirae Asset Daewoo International Network

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