13 July 2016 Asia Pacific/Japan Equity Research Internet Nexon (3659 / 3659 JT) Rating OUTPERFORM* Price (12 Jul 16, ¥) 1,444 INITIATION Target price (¥) 1,900¹ Chg to TP (%) 31.6 Market cap. (¥ bn) 629.93 (US$ 6.10) Initiating at OUTPERFORM due to stability Enterprise value (¥ bn) 440.12 Number of shares (mn) 436.24 from new titles, diverse portfolio Free float (%) 35.0 52-week price range 2,065 - 1,401 ■ Action: We initiate coverage of Nexon with an OUTPERFORM rating and a *Stock ratings are relative to the coverage universe in each ¥1,900 target price (potential return 31.6%). analyst's or each team's respective sector. ¹Target price is for 12 months. ■ Investment case: Impairment for consolidated subsidiary gloops has now Research Analysts been fully booked, greatly reducing future impairment risk. Amortization is Keiichi Yoneshima also down following the full amortization of IP for Dungeon Fighter Online 81 3 4550 9740 (Arad Senki) in August 2015, which had been ¥700mn/month. Looking at
[email protected] revenues, existing games are doing well, and Nexon is preparing to release game iterations under existing strong brand titles. Even though the rising yen is negative for earnings, we think Nexon’s foundations in online gaming make its earnings quite reliable, and we rate the shares OUTPERFORM. ■ Catalysts/risk: Potential catalysts include new title launch dates, and new title earnings contributions. Risks include earnings deterioration in existing titles, especially in China and Korea, and a stronger yen. In addition, results of the investigation by Korean prosecutors announced on 12 July may weigh on the share price.