Kakao Games to Overshoot to the Upside

[Korea] September 10, 2020

Game s (Overweight/Maintain) Kakao Games to overshoot to the upside

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

Game performance trends Analysis of game performance trends in July and August (Sensor Tower data) ó We analyzed the revenue trends of major titles using data from mobile app data provider Sensor Tower. ó Our figures are based on a statistical analysis and may differ from actual revenue, depending on the time series and sample size. ó Thus, our figures should be viewed as a reference for the performance trends of each title, rather than as absolute values.

New title expectations to drive Initiate our coverage on Kakao Games with a Buy rating and TP of W42,000 momentum ó The release schedule for blockbuster titles is the most important variable in the valuation of game companies. ó Generally speaking, game stocks trade at high P/Es when frequent new releases provide sustained momentum. ó Shares of NCsoft, Netmarble (251270 KS/CP: W189,000), and Pearl Abyss (263750 KQ/CP: W196,700) have traded at average P/Es of 24x, 50x, and 14x, respectively, since their IPOs. ó Notably, expectations for blockbuster titles caused the valuations of Netmarble and Pearl Abyss to surge right after their IPOs (with P/Es reaching 80x and 200x, respectively). ó Kakao Games’ offering price implies a 2020F P/E of 19x; our target price implies a P/E of 30x.

Notable stocks in 3Q20: Webzen Small/mid -sized game stocks to monitor in 2H20: Webzen and JoyCity and JoyCity ó The market is expecting both Webzen (069080 KQ/CP: W36,750) and JoyCity (067000 KQ/CP: W22,250) to deliver record revenue, backed by the solid performance of existing titles and the commercial success of new titles. ó Webzen has been successful in launching new titles every quarter. R2M has overc ome its initially weak market reception to become the fourth highest grossing app (based on Google Play and App Store data). ó Besides supporting Webzen’s earnings improvement, the commercial success of R2M proves the firm’s in-house game development capabilities. ó For JoyCity, increasing visibility on the global release schedules of five upcoming titles should provide steady momentum. ó JoyCity’s Pirates of the Caribbean and Gunship Battle: Total Warfare (key revenue drivers) are likely to continue rapid growth in 3Q20. Kakao Games’ Guardian Tales : Global daily revenue

Source: Sensor Tower, Mirae Asset Daewoo Research estimates

Analysts who prepared this report are registered as research analysts in Korea but not in any other jurisdiction, including t he US. PLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES AND DISCLAIMERS IN APPENDIX 1 AT THE END OF REPORT. September 10, 2020 Games

C O N T E N T S

I. Industry overview 3 Game companies to display steady earnings in 3Q20 3

II. Key game trends and metrics 5 1. NCsoft 5 2. Netmarble 6 3. Pearl Abyss 9 4. Webzen 10 5. JoyCity 11 6. NHN 12 7. Neowiz 13 8. DoubleU Games 14 9. ME2ZEN 15

Key recommendations 16 NCsoft 17 Kakao Games 21

Mirae Asset Daewoo Research 2 September 10, 2020 Games

I. Industry overview

Game companies to display steady earnings in 3Q20

Based on our analysis of major titles’ July and August revenue trends, we expect domestic game companies to display steady earnings in 3Q20.

For NCsoft and Netmarble, game revenue in July and August held steady at 2Q20 levels. Meanwhile, at Webzen, JoyCity, NHN (181710 KS/CP: W79,600), Neowiz (095660 KQ/CP: W28,600), DoubleU Games (192080 KS/CP: W75,600), and ME2ZEN (950190 KQ/CP: W30,400), mobile game revenue exceeded the monthly averages recorded in 2Q20.

We attribute Korean game companies’ sound revenue growth in July and August to: 1) an increase in time spent indoors (due to the pandemic); and 2) new titles that have performed strongly in Korea and abroad, such as Netmarble’s Seven Deadly Sins (global), Webzen’s MU Archangel (domestic), JoyCity’s Hero Ball Z (global), and Kakao Games’ Guardian Tales (global) .

New title expectations are mounting, as game companies tend to concentrate the releases of long-awaited blockbuster titles in the fourth quarter. Expectations are also building for the potential IPO of Krafton, developer of PlayerUnknown's Battlegrounds . Given the high visibility of earnings improvement in 3Q20, we believe attention should now turn to the success prospects of upcoming titles.

Table 1. Major gaming players: Revenue outlook Company Major mobile games Revenue trend ∙ Lineage M (domestic) NCsoft = ∙ Lineage 2M (domestic) ∙ Marvel Contest of Champions (global) Netmarble ∙ Seven Deadly Sins (global) = ∙ Lineage 2: Revolution (global) ∙ Cookie Run: OvenBreak (global) Kakao Games ∙ The Legendary Moonlight Sculptor (domestic) - ∙ Guardian Tales (global) ∙ Black Desert (domestic) Pearl Abyss ∙ Black Desert (Japan) + ∙ Black Desert (global) ∙ MU Archangel (domestic) Webzen ∙ R2M (domestic) + ∙ MU Origin 2 (global) ∙ Pirates of the Caribbean (global) JoyCity + ∙ Gunship Battle (global) ∙ Hangame Poker (domestic) NHN = ∙ Hangame Sudda (domestic) ∙ Pmang New Matgo (domestic) Neowiz ∙ Pmang Poker (domestic) = ∙ Pmang Sudda (domestic) ∙ DoubleDown Casino Slots (global) DoubleU Games = ∙ DoubleU Casino: Vegas Slots (global) Source: Mirae Asset Daewoo Research

Mirae Asset Daewoo Research 3 September 10, 2020 Games

Table 2. Global peer valuation table (Wbn, x, %) Revenue OP NP ROE P/E P/B OP margin Market cap 20F 21F 20F 21F 20F 21F 20F 21F 20F 21F 20F 21F 20F 21F NCsoft (Korea) 17,431 2,599 3,358 951 1,410 747 1,074 26.7 30.1 23.2 16.1 5.5 4.3 36.6 42.0 Netmarble 16,217 2,573 2,885 262 382 272 350 5.8 7.0 58.8 45.8 3.2 3.0 10.2 13.3 Pearl Abyss 2,565 526 551 183 181 156 157 23.4 18.6 16.2 15.9 3.3 2.8 34.9 32.8 NHN 1,544 1,671 1,876 121 155 74 100 4.5 5.8 20.5 15.4 0.9 0.8 7.3 8.2 Com2Us 1,639 513 644 129 179 123 160 12.6 14.5 13.3 10.2 1.6 1.4 25.2 27.8 Webzen 1,319 265 302 82 110 66 90 16.7 19.3 20.2 14.7 3.1 2.5 31.0 36.5 DoubleU Games 1,384 666 692 204 224 148 165 20.4 19.1 9.2 8.0 1.7 1.4 30.6 32.4 WeMade 587 125 164 8 30 14 30 5.8 12.0 42.0 19.6 2.4 2.3 6.5 18.5 Activision 69,891 9,249 9,568 3,788 3,866 3,017 3,141 15.8 15.2 23.6 22.8 4.0 3.5 41.0 40.4 Blizzard (US) Electronic Arts 42,668 7,228 7,462 2,380 2,504 1,921 2,065 18.1 17.8 22.7 21.1 4.4 4.0 32.9 33.6 Take -Two 21,231 3,576 4,058 773 931 651 774 17.2 15.2 32.2 27.9 5.7 4.9 21.6 22.9 Interactive Zynga 10,629 2,634 3,209 259 499 429 544 8.3 17.0 26.7 23.7 4.6 4.0 9.8 15.5 Glumobile 1,426 629 689 8 65 68 98 20.3 19.8 20.5 16.4 3.1 2.7 1.2 9.5 Ubisoft (FR) 11,570 3,561 3,680 668 737 458 521 19.8 17.9 23.6 21.6 5.1 4.2 18.8 20.0 Nintendo (Japan) 85,277 16,217 15,595 5,187 5,080 3,809 3,740 20.5 18.3 21.0 21.1 4.0 3.6 32.0 32.6 Nexon 24,942 3,316 3,806 1,442 1,781 1,313 1,551 16.8 17.2 19.0 16.0 3.1 2.6 43.5 46.8 Square Enix 9,158 3,591 3,599 603 619 410 428 15.3 14.4 21.9 21.0 3.2 2.9 16.8 17.2 DeNA 2,600 1,359 1,407 165 161 131 125 5.4 5.1 20.1 20.8 1.0 1.0 12.1 11.5 Gungho Online 2,314 944 909 241 222 152 142 13.5 10.5 10.8 11.6 1.6 1.4 25.5 24.4 GREE 1,232 708 702 48 46 34 33 2.7 2.7 34.6 35.8 0.9 0.9 6.8 6.6 Tencent (China) 744,356 83,271 102,632 25,950 30,949 21,325 26,741 22.9 22.6 35.3 28.4 7.7 6.1 31.2 30.2 NetEase 75,193 12,621 14,587 2,979 3,480 3,012 3,392 20.8 19.7 23.4 20.8 4.7 4.1 23.6 23.9 Kingsoft 7,895 1,029 1,246 328 411 624 245 18.4 7.2 11.1 34.4 0.0 0.0 31.9 33.0 Youzu 3,080 868 1,005 188 239 192 235 19.0 19.5 16.1 13.4 2.8 2.4 21.6 23.8 Source: Bloomberg, Mirae Asset Daewoo Research

Mirae Asset Daewoo Research 4 September 10, 2020 Games

II. Key game trends and metrics

1. NCsoft

Figure 1. Lineage M : Domestic monthly revenue Figure 2. Lineage 2M : Domestic monthly revenue

(Wbn) (Wbn) 120

120 100

80 80 60

40 40

0 0 8/19 10/19 12/19 2/20 4/20 6/20 8/20 11/19 2/20 5/20 8/20 Source: Sensor Tower, Mirae Asset Daewoo Research estimates Source: Sensor Tower, Mirae Asset Daewoo Research estimates

Figure 3. Lineage M : Taiwan quarterly revenue Figure 4. Lineage M : Japan quarterly revenue

(Wbn) (Wbn) 120 12

100 10

80 8

60 6

40 4

20 2

0 0 3Q19 4Q19 1Q20 2Q20 3Q20F 3Q19 4Q19 1Q20 2Q20 3Q20F Source: Sensor Tower, Mirae Asset Daewoo Research estimates Source: Sensor Tower, Mirae Asset Daewoo Research estimates

Mirae Asset Daewoo Research 5 September 10, 2020 Games

2. Netmarble

Figure 5. Seven Deadly Sins : Global monthly revenue

(Wbn) 60

0 8/19 10/19 12/19 2/20 4/20 6/20 8/20 Source: Sensor Tower, Mirae Asset Daewoo Research estimates

Figure 6. Lineage 2: Revolution : Global monthly revenue Figure 7. Blade & Soul Revolution : Domestic monthly revenue

(Wbn) (Wbn) 40 30

30 20

10 10

0 0 8/19 10/19 12/19 2/20 4/20 6/20 8/20 8/19 10/19 12/19 2/20 4/20 6/20 8/20 Source: Sensor Tower, Mirae Asset Daewoo Research estimates Source: Sensor Tower, Mirae Asset Daewoo Research estimates

Mirae Asset Daewoo Research 6 September 10, 2020 Games

Figure 8. A3 : Domestic monthly revenue Figure 9. BTS World : Global monthly revenue

(Wbn) (Wbn) 20 8

15 6

10 4

5 2

0 0 3/20 4/20 5/20 6/20 7/20 8/20 8/19 10/19 12/19 2/20 4/20 6/20 8/20 Source: Sensor Tower, Mirae Asset Daewoo Research estimates Source: Sensor Tower, Mirae Asset Daewoo Research estimates

Figure 10. The King of Fighters All Star : Domestic monthly Figure 11. The King of Fighters All Star : Global monthly revenue revenue

(Wbn) (Wbn) 10 15

0 0 8/19 10/19 12/19 2/20 4/20 6/20 8/20 10/19 12/19 2/20 4/20 6/20 8/20 Source: Sensor Tower, Mirae Asset Daewoo Research estimates Source: Sensor Tower, Mirae Asset Daewoo Research estimates

Figure 12. Marvel Contest of Champions : Global monthly Figure 13. Marvel Future Fight : Global monthly revenue revenue

(Wbn) (Wbn) 50 20

30 10 20

0 0 8/19 10/19 12/19 2/20 4/20 6/20 8/20 8/19 10/19 12/19 2/20 4/20 6/20 8/20

Source: Sensor Tower, Mirae Asset Daewoo Research estimates Source: Sensor Tower, Mirae Asset Daewoo Research estimates

Mirae Asset Daewoo Research 7 September 10, 2020 Games

Figure 14. Cookie Jam : Global monthly revenue Figure 15. Harry Potter : Global monthly revenue

(Wbn) (Wbn) 15 15

10 10

5 5

0 0 8/19 10/19 12/19 2/20 4/20 6/20 8/20 8/19 10/19 12/19 2/20 4/20 6/20 8/20 Source: Sensor Tower, Mirae Asset Daewoo Research estimates Source: Sensor Tower, Mirae Asset Daewoo Research estimates

Figure 16. Everybody's Marble : Global monthly revenue Figure 17. Seven Knights : Global monthly revenue

(Wbn) (Wbn) 6 6

4 4

2 2

0 0 8/19 10/19 12/19 2/20 4/20 6/20 8/20 8/19 10/19 12/19 2/20 4/20 6/20 8/20

Source: Sensor Tower, Mirae Asset Daewoo Research estimates Source: Sensor Tower, Mirae Asset Daewoo Research estimates

Mirae Asset Daewoo Research 8 September 10, 2020 Games

3. Pearl Abyss

Figure 18. Black Desert : Domestic monthly revenue

(Wbn) 15

0 8/19 10/19 12/19 2/20 4/20 6/20 8/20

Source: Sensor Tower, Mirae Asset Daewoo Research estimates

Figure 19. Black Desert : Japan monthly revenue

(Wbn) 15

0 8/19 10/19 12/19 2/20 4/20 6/20 8/20

Source: Sensor Tower, Mirae Asset Daewoo Research estimates

Figure 20 . Black Desert : Global monthly revenue

(Wbn) 15

0 12/19 2/20 4/20 6/20 8/20 Source: Sensor Tower, Mirae Asset Daewoo Research estimates

Mirae Asset Daewoo Research 9 September 10, 2020 Games

4. Webzen

Figure 21 . MU Archangel : Domestic monthly revenue

(Wbn) 30

0 5/20 6/20 7/20 8/20 Source: Sensor Tower, Mirae Asset Daewoo Research estimates

Figure 22. R2M : Domestic daily revenue

(Wbn) 1.0

0.8

0.6

0.4

0.2

0.0 8/23 8/27 8/31 9/4 Source: Sensor Tower, Mirae Asset Daewoo Research estimates

Mirae Asset Daewoo Research 10 September 10, 2020 Games

5. JoyCity

Figure 23. Pirates of the Caribbean : Global monthly revenue

(Wbn) 5

0 8/19 10/19 12/19 2/20 4/20 6/20 8/20 Source: Sensor Tower, Mirae Asset Daewoo Research estimates

Figure 24. Gunship Battle : Global monthly revenue

(Wbn) 4

0 8/19 10/19 12/19 2/20 4/20 6/20 8/20 Source: Sensor Tower, Mirae Asset Daewoo Research estimates

Figure 25. Heroball Z : Global daily revenue

(Wmn)

120

100

0 7/1 7/8 7/15 7/22 7/29 8/5 8/12 8/19 8/26 9/2

Source: Sensor Tower, Mirae Asset Daewoo Research estimates

Mirae Asset Daewoo Research 11 September 10, 2020 Games

6. NHN

Figure 26. Hangame Poker : Domestic monthly revenue

(Wbn) 4

0 8/19 10/19 12/19 2/20 4/20 6/20 8/20 Source: Sensor Tower, Mirae Asset Daewoo Research estimates

Figure 27. Hangame Sudda : Domestic monthly revenue

(Wbn) 1.5

1.0

0.5

0.0 8/19 10/19 12/19 2/20 4/20 6/20 8/20

Source: Sensor Tower, Mirae Asset Daewoo Research estimates

Mirae Asset Daewoo Research 12 September 10, 2020 Games

7. Neowiz

Figure 28. Pmang New Matgo : Domestic monthly revenue

(Wbn) 1.5

1.0

0.5

0.0 8/19 10/19 12/19 2/20 4/20 6/20 8/20

Source: Sensor Tower, Mirae Asset Daewoo Research estimates

Figure 29. Pmang Poker : Domestic monthly revenue

(Wbn) 8

0 8/19 10/19 12/19 2/20 4/20 6/20 8/20 Source: Sensor Tower, Mirae Asset Daewoo Research estimates

Figure 30. Pmang Sudda : Domestic monthly revenue

(Wbn) 1.0

0.5

0.0 8/19 10/19 12/19 2/20 4/20 6/20 8/20 Source: Sensor Tower, Mirae Asset Daewoo Research estimates

Mirae Asset Daewoo Research 13 September 10, 2020 Games

8. DoubleU Games

Figure 32. DoubleU Casino: Vegas Slots : Global monthly Figure 31. DoubleDown Casino Slots : Global monthly revenue revenue

(Wbn) (Wbn) 35 20

15 25

20 10 15

10 5

0 0 8/19 10/19 12/19 2/20 4/20 6/20 8/20 8/19 10/19 12/19 2/20 4/20 6/20 8/20 Source: Sensor Tower, Mirae Asset Daewoo Research estimates Source: Sensor Tower, Mirae Asset Daewoo Research estimates

Figure 33. Casino Slots DoubleDown Fort Knox : Global Figure 34. Take5 Free Slots – Real Vegas Casino : Global monthly revenue monthly revenue

(Wbn) (Wbn) 1.5 1.0

1.0

0.5

0.0 0.0 8/19 10/19 12/19 2/20 4/20 6/20 8/20 8/19 10/19 12/19 2/20 4/20 6/20 8/20 Source: Sensor Tower, Mirae Asset Daewoo Research estimates Source: Sensor Tower, Mirae Asset Daewoo Research estimates

Mirae Asset Daewoo Research 14 September 10, 2020 Games

9. ME2ZEN

Figure 35 . Slots - Classic Vegas Casino : Global monthly Figure 36. Double Hit Casino: Vegas Slots : Global monthly revenue revenue

(Wbn) (Wbn) 2.5 2.0

2.0 1.5

1.5 1.0 1.0

0.5 0.5

Figure 38. Solitaire TriPeaks: Farm Adventure : Global monthly Figure 37 . Solitaire TriPeaks Journey : Global monthly revenue revenue

(Wbn) (Wbn) 1.5 0.4

1.0

0.2

0.5

Mirae Asset Daewoo Research 15 September 10, 2020 Games

Key recommendations

NCsoft (036570/Buy) New title momentum to materialize from October

Kakao Games (293490/Buy) Share price set to overshoot to the upside

Mirae Asset Daewoo Research 16 [Korea] Games September 10, 2020

NCsoft Buy (036570 KS ) (Maintain)

New title momentum to materialize from October TP: W1,260,000 Upside: 59.3%

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

Lineage M continued robust In July -August, combined revenue of Lineage M and Lineage 2M remained at 2Q20 levels performance, while Lineage 2M ó After falling in July, the revenue of Lineage 2M stabilized at a lower level in August. remained weak ó Lineage M ’s revenue has reached a yearly high, following the massive July update marking the game’s third anniversary. ó In July and August, the combined daily revenue of Lineage M and Lineage 2M totaled W4bn (vs. W6.2bn in 1Q20). ó For 3Q20 as a whole, we expect the combined daily revenue of Lineage M and Lineage 2M to slightly recover to W4.2bn.

Upcoming titles: Blade & Soul 2, News flow s related to title releases to increase from October Project TL , and Aion 2 ó The company confirmed that Blade & Soul 2 (which should appeal to younger gamers with its compelling universe, graphics, and gameplay) will be released within the year, as scheduled. We expect marketing (e.g., preorders) to begin in 4Q20. ó NCsoft also plans to directly launch Lineage 2M in Taiwan within the year. Lineage II (PC version) fared well in Taiwan, recording around 70% of the number of servers, concurrent users, and revenue seen in Korea. ó November tends to be an eventful month for the gaming industry (e.g., G-Star Game Exhibition). This year, the news flows regarding upcoming titles (e.g., online showcase events) are likely to start in October and be concentrated in November.

Growing expectations for n ew Maintain Buy and TP of W1,260,000 title releases and overseas ó NCsoft’s stock looks cheap relative to major peers in the US and China. market/platform expansion ó Amid high visibility on steady 3Q20 earnings, we believe investors are waiting for new title releases to materialize. ó Shares of major US gaming stocks have declined b y around 10% recently (including Activision Blizzard [ATVI US/CP: US$75.59], which NCsoft has been moving in line with). ó We believe the upcoming release of next-generation consoles (PlayStation 5 and Xbox Series X) will boost expectations for the US gaming sector. ó Going forward, the market is likely to reflect momentum from upcoming titles ( Project TL and Aion 2 ) through 2021.

Key data Current price (9/9/20, W) 791,000 Market cap (Wbn) 17,366 210 NCsoft KOSPI OP (20F, Wbn) 905 Shares outstanding (mn) 22 160 Consensus OP (20F, Wbn) 948 Free float (%) 81.9 EPS growth (20F, %) 129.9 Foreign ownership (%) 49.2 110 P/E (20F, x) 21.1 Beta (12M) 0.59 Market P/E (20F, x) 16.9 52-week low (W) 485,000 60 9.19 1.20 5.20 9.20 KOSPI 2,375.81 52-week high (W) 995,000

Share performance Earnings and valuation metrics (%) 1M 6M 12M (Dec.) 2017 2018 2019 2020F 2021F 2022F Absolute -8.6 16.3 43.3 Revenue (Wbn) 1,759 1,715 1,701 2,647 2,994 3,234 Relative -9.5 -4.3 21.8 OP (Wbn) 585 615 479 905 1,309 1,502

OP margin (%) 33.3 35.9 28.2 34.2 43.7 46.4 NP (Wbn) 441 418 358 824 937 1,141 EPS (W) 20,104 19,061 16,320 37,515 42,667 51,956 ROE (%) 19.1 16.4 14.7 28.8 25.9 25.2 P/E (x) 22.3 24.5 33.1 21.1 18.5 15.2 P/B (x) 3.4 3.7 4.1 4.8 3.9 3.2 Dividend yield (%) 1.6 1.3 1.0 0.8 0.9 1.0 Notes: Under consolidated K-IFRS; NP is attributable to owners of the parent Source: Company data, Mirae Asset Daewoo Research estimat es Analysts who prepared this report are registered as research analysts in Korea but not in any other jurisdiction, including t he US. PLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES AND DISCLAIMERS IN APPENDIX 1 AT THE END OF REPORT. September 10, 2020 Games

Figure 39. Lineage M : Daily revenue

(Wbn) 7

0 1/1 2/1 3/3 4/3 5/4 6/4 7/5 8/5 9/5 Source: Sensor Tower, Mirae Asset Daewoo Research estimates

Figure 40. Lineage 2M : Daily revenue

(Wbn) 12

0 1/1 2/1 3/3 4/3 5/4 6/4 7/5 8/5 9/5 Source: Sensor Tower, Mirae Asset Daewoo Research estimates

Figure 41. Lineage M + Lineage 2M : Daily revenue

(Wbn) 14

0 1/1 2/1 3/3 4/3 5/4 6/4 7/5 8/5 9/5 Source: Sensor Tower, Mirae Asset Daewoo Research estimates

Mirae Asset Daewoo Research 18 September 10, 2020 Games

Table 3. NCsoft: Quarterly and annual earnings (Wbn, %) 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20F 4Q20F 2018 2019 2020F Revenue 359 411 398 534 731 539 550 827 1,715 1,701 2,647 Lineage 21 50 52 51 45 34 35 37 150 174 151 Lineage II 22 21 23 28 26 26 22 23 64 94 97 Aion 12 12 13 8 10 8 9 9 63 46 37 Blade & Soul 23 21 21 18 20 20 19 19 120 84 77 Guild Wars 2 16 16 15 11 13 16 13 13 80 59 54 Mobile games 199 224 213 363 553 357 381 655 913 999 1,946 Other 8 15 16 10 12 15 14 14 44 49 55 Royalties 57 52 44 44 53 62 58 57 282 198 230 OP 80 129 129 141 241 209 216 384 615 479 905 OP margin 22.2 31.5 32.4 26.4 33.0 38.8 39.3 46.5 35.9 28.2 34.2 NP 75 117 114 54 195 158 170 302 422 359 825 Net margin 20.8 28.4 28.6 10.1 26.7 29.4 30.9 36.5 24.6 21.1 31.2 YoY growth Revenue -24.5 -5.9 -1.5 33.4 103.8 31.1 38.2 55.0 -2.5 -0.8 55.6 Lineage -26.7 19.1 28.6 31.7 116.0 -31.6 -33.4 -27.8 -3.0 16.3 -13.4 Lineage II 51.5 59.0 47.3 34.4 22.7 21.5 -4.0 -17.5 -2.9 46.5 3.9 Aion -34.3 -20.7 -19.2 -36.3 -17.7 -33.9 -30.7 14.0 35.2 -27.5 -20.2 Blade & Soul -31.3 -31.1 -28.6 -28.0 -15.7 -6.2 -12.9 4.5 -25.8 -29.9 -8.3 Guild Wars 2 -30.9 -20.0 -27.8 -27.8 -23.3 -1.5 -13.6 16.5 -3.2 -26.8 -7.2 Mobile games -24.7 6.6 -1.5 62.9 178.3 59.6 78.6 80.4 -8.2 9.4 94.8 Other 4.6 16.9 25.2 -8.4 39.2 5.3 -12.8 43.7 -11.3 10.7 13.3 Royalties -31.8 -44.2 -14.2 -17.0 -8.0 20.8 30.1 28.4 38.9 -29.9 16.2 OP -61.0 -18.9 -7.3 24.7 203.6 61.5 67.5 172.3 5.1 -22.1 89.0 NP -37.3 -16.7 20.3 -19.9 161.6 35.5 49.4 457.5 -5.0 -14.8 129.7 Source: Company data, Mirae Asset Daewoo Research estimates

Mirae Asset Daewoo Research 19 September 10, 2020 Games

NCsoft (036570 KS)

Income statement (summarized) Balance sheet (summarized) (Wbn) 2019 2020F 2021F 2022F (Wbn) 2019 2020F 2021F 2022F Revenue 1,701 2,647 2,994 3,234 Current assets 2,088 2,999 3,861 4,866 Cost of revenue 0 0 0 0 Cash & equivalents 303 662 1,321 2,187 Gross profit 1,701 2,647 2,994 3,234 AR & other receivables 257 401 453 490 SG&A expenses 1,222 1,741 1,685 1,732 Inventory 2 3 4 4 OP (adj.) 479 905 1,309 1,502 Other current assets 1,526 1,933 2,083 2,185 OP 479 905 1,309 1,502 Non-current assets 1,259 1,343 1,395 1,454 Non-operating profit 17 202 13 72 Investments in associates 44 68 77 83 Net financial income 25 34 50 68 PP&E 350 408 450 504 Net income from associates -19 0 0 0 Intangible assets 50 48 47 46 Pretax profit 496 1,107 1,322 1,574 Total assets 3,346 4,342 5,255 6,321 Income tax 137 281 383 430 Current liabilities 450 693 783 845 Profit from continuing operations 359 826 939 1,144 AP & other payables 50 77 87 95 Profit from discontinued operations 0 0 0 0 Short-term financial liabilities 43 60 67 71 NP 359 826 939 1,144 Other current liabilities 357 556 629 679 Attributable to owners 358 824 937 1,141 Non-current liabilities 384 418 431 439 Attributable to minority interests 1 2 3 3 Long-term financial liabilities 324 324 324 324 Total comprehensive income 264 826 939 1,144 Other non-current liabilities 60 94 107 115 Attributable to owners 263 820 933 1,136 Total liabilities 834 1,112 1,214 1,284 Attributable to minority interests 2 5 6 7 Equity attributable to owners 2,499 3,215 4,024 5,016 EBITDA 531 967 1,378 1,580 Capital stock 11 11 11 11 FCF 341 854 929 1,113 Capital surplus 436 436 436 436 EBITDA margin (%) 31.2 36.5 46.0 48.9 Retained earnings 2,382 3,098 3,907 4,899 OP margin (%) 28.2 34.2 43.7 46.4 Minority interests 13 15 18 21 Net margin (%) 21.0 31.1 31.3 35.3 Shareholders' equity 2,512 3,230 4,042 5,037

Cash flow statement (summarized) Key valuation metrics/ratios (Wbn) 2019 2020F 2021F 2022F 2019 2020F 2021F 2022F Operating cash flow 392 972 1,039 1,243 P/E (x) 33.1 21.1 18.5 15.2 NP 359 826 939 1,144 P/CF (x) 21.2 15.3 13.0 11.0 Non-cash income/expenses 200 306 398 436 P/B (x) 4.1 4.8 3.9 3.2 Depreciation 51 61 68 76 EV/EBITDA (x) 21.2 15.8 10.5 8.6 Amortization 1 1 1 1 EPS (W) 16,320 37,515 42,667 51,956 Other 148 244 329 359 CFPS (W) 25,497 51,546 60,930 71,942 Chg. in working capital -71 84 31 21 BPS (W) 133,449 166,064 202,893 248,072 Chg. in AR & other receivables -106 -141 -52 -36 DPS (W) 5,220 6,220 7,220 8,220 Chg. in inventory -1 -1 0 0 Dividend payout ratio (%) 30.0 15.5 15.8 14.8 Chg. in AP & other payables 3 3 1 1 Dividend yield (%) 1.0 0.8 0.9 1.0 Income tax -130 -281 -383 -430 Revenue growth (%) -0.8 55.6 13.1 8.0 Cash flow from investing activities -234 -498 -250 -227 EBITDA growth (%) -17.4 82.1 42.5 14.7 Chg. in PP&E -50 -118 -110 -130 OP growth (%) -22.1 88.9 44.6 14.7 Chg. in intangible assets -3 0 0 0 EPS growth (%) -14.4 129.9 13.7 21.8 Chg. in financial assets -446 -380 -140 -97 AR turnover (x) 8.4 8.1 7.1 6.9 Other 265 0 0 0 Inventory turnover (x) 1,105.6 999.0 871.1 852.2 Cash flow from financing activities -46 -90 -122 -144 AP turnover (x) 0.0 0.0 0.0 0.0 Chg. in financial liabilities 211 17 6 4 ROA (%) 11.4 21.5 19.6 19.8 Chg. in equity 3 0 0 0 ROE (%) 14.7 28.8 25.9 25.2 Dividends -125 -108 -128 -149 ROIC (%) 131.5 208.5 272.1 292.4 Other -135 1 0 1 Debt-to-equity ratio (%) 33.2 34.4 30.0 25.5 Chg. in cash 118 359 659 866 Current ratio (%) 464.2 432.5 493.1 576.0 Beginning balance 186 303 662 1,321 Net debt-to-equity ratio (%) -24.4 -65.7 -72.1 -76.9 Ending balance 303 662 1,321 2,187 Interest coverage ratio (x) 56.9 74.7 104.7 118.5 Source: Company data, Mirae Asset Daewoo Research estimates

Mirae Asset Daewoo Research 20 [Korea] Games September 10, 2020

Kakao Games Buy (293490 KQ ) (Initiate)

Share price set to overshoot to the upside TP: W42,000 Upside: -

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

A full -range game company with Encompassing development /publishing, domestic /global markets , and PC/mobile games ties to Kakao ó Kakao Games’ biggest strength is its ties to KakaoTalk, a leading mobile platform in Korea. ó In 1H20, Kakao Games derived 44% of its revenue from PC games and 45% from mobile games. ó The company generates 20% of its revenue from in-house developed games, 60% from game publishing, and 10% from platform services (other: 10%). The overseas revenue mix stands a t 30%. ó Kakao Games has stakes in game developing subsidiaries (e.g., XLGames and Friends Games)

Earnings set to improve in 3Q20 Guardian Tales performing strongly following its release in July and 2021 ó For 3Q20, we expect Kakao Games to post revenue of W141bn and operating profit of W24bn. ó We expect the highly anticipated title Elyon to begin contributing to revenue in 4Q20. ó For the full year, we forecast revenue of W506bn (+29.5% YoY) and operating profit of W86 bn (+146.4% YoY). ó For 2021, we forecast revenue of W612bn (+20.8% YoY) and operating profit of W122bn (+41.7% YoY)

Valuations of game companies Initiate coverage with Buy rating and TP of W42,000 hinge on the frequency of ó We initiate cover age on Kakao Games with a Buy rating and target price of W42,000. We derived blockbuster title releases our target price by applying a P/E of 30x to our 2020F EPS. Our target multiple represents the average of three major Korean companies’ long-term multiples: NCsoft (24x), Netmarbl e (50x), and Pearl Abyss (14x). ó We attribute the gap in the average valuations of NCsoft, Netmarble, and Pearl Abyss to differences in the frequency of blockbuster title releases. ó Notably, expectations for blockbuster titles caused the valuations of Netmarble and Pearl Abyss to surge right after their IPOs (with P/Es reaching 80x and 200x, respectively). ó Kakao Games’ offering price implies a 2020F P/E of 19x.

Key data Current price (9/9/20, W) - Market cap (Wbn) - OP (20F, Wbn) 86 Shares outstanding (mn) - Consensus OP (20F, Wbn) 89 Free float (%) - EPS growth (20F, %) 552.4 Foreign ownership (%) - P/E (20F, x) - Beta (12M) - Market P/E (20F, x) 16.9 52-week low (W) - KOSDAQ .00 52-week high (W) -

Share performance Earnings and valuation metrics (%) 1M 6M 12M (Dec.) 2017 2018 2019 2020F 2021F 2022F Absolute - - - Revenue (Wbn) 201 421 391 506 612 647 Relative - - - OP (Wbn) 39 47 35 86 122 133

OP margin (%) 19.4 11.2 9.0 17.0 19.9 20.6 NP (Wbn) 62 19 11 78 98 106 EPS (W) 2,174 352 197 1,285 1,370 1,469 ROE (%) 47.4 6.2 2.6 12.1 10.6 10.3 P/E (x) ------P/B (x) ------Dividend yield (%) ------Notes: Under consolidated K-IFRS; NP is attributable to owners of the parent Source: Company data, Mirae Asset Daewoo Research estimat es Analysts who prepared this report are registered as research analysts in Korea but not in any other jurisdiction, including t he US. PLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES AND DISCLAIMERS IN APPENDIX 1 AT THE END OF REPORT. September 10, 2020 Games

Game stocks typically overshoot to the upside right after IPOs, driven by expectations for new title releases

We initiate coverage on Kakao Games with a Buy rating and target price of W42,000. We derived our target price by applying a P/E of 30x to our 2020F EPS. Our target multiple represents the average of three major Korean companies’ long-term multiples: NCsoft (24x), Netmarble (50x), and Pearl Abyss (14x).

Netmarble and Pearl Abyss, which went public around the same time, have recorded very different average P/Es. We attribute this gap not to differences in their game development capabilities or IP assets, but rather to differences in the frequency of blockbuster title releases.

Meanwhile, for NCsoft, we note that valuation tends to soar in the run-up to the release of a blockbuster title as expectations are reflected, before declining due to the absence of expectations during the hiatus between releases. (This happens regardless of the success of the new title release.)

Expectations for blockbuster titles caused the valuations of Netmarble and Pearl Abyss to surge right after their IPOs (with P/Es reaching 80x and 200x, respectively).

Figure 42. Netmarble: Post-IPO P/E trend (x)

100.0 2018 Expectations for B&S Revolution release and launch of L2R in China 80.0

50x 60.0

40.0

L2R release B&S Revolution release 20.0 (12/16) (12/18)

0.0 5/17 11/17 5/18 11/18 5/19 11/19 5/20

Source: Bloomberg, Mirae Asset Daewoo Research estimates

Figure 43. Pearl Abyss: Post-IPO P/E trend (x)

250.0 Black Desert M (2/18) 200.0

150.0

100.0

50.0 14.4x

0.0 9/17 3/18 9/18 3/19 9/19 3/20

Source: Bloomberg, Mirae Asset Daewoo Research estimates

Mirae Asset Daewoo Research 22 September 10, 2020 Games

Figure 44. NCsoft’s P/E trend: New title expectations have historically peaked right before release

(x) Guild Wars 2 B&S Lineage Tabula Rasa B&S 2, L2M, B&S 2, 60 B&S (US/EU) (China) Lineage M L2M (US) Lineage II (US/EU) Aion Aion 2 Aion 2 (global) 52.9 51.3 52.3 50 50.1

40 37.9 33.8

20 21 18.1 (2020F) 13.5 12.9 10 12.3 12.9 6.8 0 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 Source: Bloomberg, Mirae Asset Daewoo Research estimates

In Apr. 2016, through a merger with Daum Game, Kakao Games became a game publisher operating in both the PC and mobile segments. In Nov. 2017, Kakao Games took over the gaming business from Kakao.

Kakao Games has stakes in game developing subsidiaries (e.g., Friends Games, XLGames, and Add Page). Moreover, Kakao Games is using Kakao Friends’ IP for its game development.

We believe Kakao Games’ biggest strength is its ties with KakaoTalk, a leading mobile platform in Korea. In addition to enabling targeted marketing based on big data, the linkage with KakaoTalk means that users can enjoy easy access to games simply using their KakaoTalk log-in credentials and play games with their KakaoTalk contacts.

In 1H20, Kakao Games derived 44% of its revenue from PC games and 45% from mobile games.

The company generates 20% of its revenue from in-house developed games, 60% from game publishing, and 10% from platform services (other: 10%). The overseas revenue mix stands at 30%.

By title, the top three games—Black Desert , PlayerUnknown's Battlegrounds , and The Legendary Moonlight Sculptor together account for 40% of total game revenue.

Most promising releases: Elyon (Nov. 2020) and Odin: Valhalla Rising (2021)

Among upcoming title releases, we believe Elyon (developer: Krafton; a PC MMORPG scheduled to be released in Nov. 2020 in Korea) deserves attention. We note that Krafton (developer of PlayerUnknown's Battlegrounds and Tera ) is working to go public in 2021.

In 1H21, Kakao Games plans to launch another promising MMORPG titled Odin: Valhalla Rising (developer: Lionheart Studio) on PC and mobile platforms. In 2022, the company is set to launch Elyon globally and XLGames’ new MMORPG title.

Mirae Asset Daewoo Research 23 September 10, 2020 Games

Table 4. Kakao Games: Post-IPO ownership breakdown (%) Shareholder Stake Kakao (largest shareholder) 46.08 Aceville Pte. 4.4 Netmarble 4.4 Whon Namkoong (CEO) 3.3 Voluntary lock-up 11.43 IPO (institutional and retail investors/ESOP) 21.86 Other (e.g., related parties) 8.54 Total 100 Source: Dart, Mirae Asset Daewoo Research

Table 5. Kakao Games: Post-IPO ownership details (%) Post-IPO share count Post-IPO stake Major shareholders 39,264,301 53.64 Third-party allocation 781,460 1.07 Voluntary lock-up 8,367,650 11.43 Post-IPO share lock-up Lead manager 70,000 0.1 ESOP 1,522,088 2.08 Subtotal 50,005,499 68.31 Other 8,721,320 11.91 Post-IPO float Public shareholders 14,477,912 19.78 Subtotal 23,199,232 31.69 Total 73,204,731 100 Source: Dart, Mirae Asset Daewoo Research

Table 6. Kakao Games: Investments in other game developers (%) Company Stake Friends Games 82.4 Kakao VX 74.8 XLGames 53 Neptune 10.1 Krafton 2.1 Webzen 1 Source: Dart, Mirae Asset Daewoo Research

Mirae Asset Daewoo Research 24 September 10, 2020 Games

Table 7. Kakao Games: Major new titles Title Elyon (domestic) 2H20 The Legendary Moonlight Sculptor (Taiwan) Odin (domestic) 1H21 Globally sourced title PathFinder8 RPG title 2H21 Globally sourced title 1H22 Elyon (global) XLGames PC MMORPG title 2H22 Second Dive RPG title Ocean Drive RPG title Source: Company data, Mirae Asset Daewoo Research

We believe Kakao Games is poised to achieve earnings improvement in 2H20. We estimate Guardian Tales’ daily average revenue stands at W700-800mn since its global and domestic release in July. For 3Q20, we expect Kakao Games to post revenue of W141bn and operating profit of W24bn.

For 2Q20, Kakao Games reported revenue of W107bn and operating profit of W16bn. Looking to 4Q20, we forecast revenue of W162bn and operating profit of W34bn, reflecting the revenue contribution of the highly anticipated Elyon .

For the full year, we forecast revenue of W506bn (+29.5% YoY) and operating profit W86bn (+146.4% YoY).

For 2021, we forecast revenue of W612bn (+20.8% YoY) and operating profit of W122bn (+41.7% YoY), supported by the full-year recognition of Elyon and the release of another blockbuster MMORPG, Odin: Valhalla Rising .

Table 8. Kakao Games: Quarterly and annual earnings (Wbn, %) 1Q20 2Q20 3Q20F 4Q20F 1Q21F 2Q21F 3Q21F 4Q21F 2017 2018 2019 2020F 2021F Revenue 96 107 141 162 142 134 172 165 198 421 391 506 612 Expenses 84 90 117 128 115 109 134 132 160 374 356 420 490 Labor 16 20 21 22 22 23 23 24 24 47 55 79 92 Fees/ 50 49 69 78 69 65 83 80 95 238 208 247 297 commissions Marketing 2 3 10 10 7 3 10 10 16 40 32 26 30 Other 15 19 17 18 18 18 18 18 25 49 61 69 71 OP 13 16 24 34 26 25 38 33 39 47 35 86 122 OP margin 13.2 15.1 16.9 20.8 18.5 18.8 21.9 20.1 19.5 11.2 9.0 17.0 20.0 NP 11 17 21 29 21 20 30 26 61 19 9 78 98 Net margin 11.4 0.2 14.9 18.0 14.9 15.1 17.4 16.0 30.6 4.5 2.3 15.4 16.0 YoY growth Revenue 4.7 11.5 38.8 59.4 46.7 25.5 21.5 1.7 112.4 -7.1 29.5 20.8 OP 31.1 104.0 173.2 285.6 106.2 56.8 57.9 -1.4 22.2 -25.8 146.4 41.7 NP 92.6 20.1 41.8 -9.3 -68.9 -53.1 780.4 25.3 Source: Company data, Mirae Asset Daewoo Research

Mirae Asset Daewoo Research 25 September 10, 2020 Games

Figure 45. The Legendary Moonlight Sculptor : Domestic Figure 46. Cookie Run OvenBreak : Global monthly revenue monthly revenue

(Wbn) (Wbn) 20.0 6.0

5.0 16.0

4.0 12.0 3.0 8.0 2.0 4.0 1.0

0.0 10/19 12/19 2/20 4/20 6/20 8/20 0.0 8/19 10/19 12/19 2/20 4/20 6/20 8/20 Source: Sensor Tower, Mirae Asset Daewoo Research estimates Source: Sensor Tower, Mirae Asset Daewoo Research estimates

Figure 47. Pmang Poker : Domestic monthly revenue Figure 48. Pmang New Matgo : Domestic monthly revenue

(Wbn) (Wbn) 8.0 2.0

7.0

6.0 1.5

5.0

4.0 1.0

3.0

2.0 0.5

1.0

Figure 50. Princess Connect! Re:Dive : Domestic monthly Figure 49. Everybody's Marble : Global monthly revenue revenue

(Wbn) (Wbn) 5.0 5.0

4.0 4.0

3.0 3.0

2.0 2.0

1.0 1.0

0.0 0.0 8/19 10/19 12/19 2/20 4/20 6/20 8/20 8/19 10/19 12/19 2/20 4/20 6/20 8/20

Source: Sensor Tower, Mirae Asset Daewoo Research estimates Source: Sensor Tower, Mirae Asset Daewoo Research estimates

Mirae Asset Daewoo Research 26 September 10, 2020 Games

Kakao Games (293490 KQ)

Income statement (summarized) Balance sheet (summarized) (Wbn) (Wbn) Revenue 391 506 612 647 Current assets 334 837 912 1,027 Cost of revenue 0 0 0 0 Cash & equivalents 247 718 769 875 Gross profit 391 506 612 647 AR & other receivables 38 56 68 72 SG&A expenses 356 420 490 514 Inventory 12 15 19 20 OP (adj.) 35 86 122 133 Other current assets 37 48 56 60 OP 35 86 122 133 Non-current assets 258 261 324 328 Non-operating profit -15 15 5 4 Investments in associates 13 20 80 85 Net financial income 2 4 7 8 PP&E 11 11 16 18 Net income from associates -1 0 0 0 Intangible assets 56 50 46 42 Pretax profit 20 101 127 137 Total assets 592 1,098 1,236 1,355 Income tax 11 23 29 31 Current liabilities 143 185 223 235 Profit from continuing operations 9 78 98 105 AP & other payables 32 41 50 53 Profit from discontinued operations 0 0 0 0 Short-term financial liabilities 25 32 38 40 NP 9 78 98 105 Other current liabilities 86 112 135 142 Attributable to owners 11 78 98 106 Non-current liabilities 31 34 36 37 Attributable to minority interests -2 0 0 0 Long-term financial liabilities 22 22 22 22 Total comprehensive income -2 78 98 105 Other non-current liabilities 9 12 14 15 Attributable to owners 1 -30 -38 -41 Total liabilities 174 218 259 272 Attributable to minority interests -2 108 137 146 Equity attributable to owners 415 877 976 1,082 EBITDA 53 102 142 154 Capital stock 6 7 7 7 FCF 66 95 113 111 Capital surplus 331 714 714 714 EBITDA margin (%) 13.6 20.2 23.2 23.8 Retained earnings 94 172 270 376 OP margin (%) 9.0 17.0 19.9 20.6 Minority interests 2 2 1 1 Net margin (%) 2.8 15.4 16.0 16.4 Shareholders' equity 417 879 977 1,083

Cash flow statement (summarized) Key valuation metrics/ratios (Wbn) Operating cash flow 70 105 133 131 P/E (x) - - - - NP 9 78 98 105 P/CF (x) - - - - Non-cash income/expenses 40 35 42 45 P/B (x) - - - - Depreciation 11 10 15 17 EV/EBITDA (x) - - - - Amortization 7 6 4 3 EPS (W) 197 1,285 1,370 1,469 Other 22 19 23 25 CFPS (W) 871 1,860 1,949 2,086 Chg. in working capital 11 12 15 5 BPS (W) 7,480 12,246 13,617 15,086 Chg. in AR & other receivables -7 -10 -9 -3 DPS (W) - - - - Chg. in inventory -3 -3 -3 -1 Dividend payout ratio (%) - - - - Chg. in AP & other payables -4 0 0 0 Dividend yield (%) - - - - Income tax -2 -23 -29 -31 Revenue growth (%) -7.1 29.4 20.9 5.7 Cash flow from investing activities 77 -19 -28 -23 EBITDA growth (%) -8.6 92.5 39.2 8.5 Chg. in PP&E -4 -10 -20 -20 OP growth (%) -25.5 145.7 41.9 9.0 Chg. in intangible assets -1 0 0 0 EPS growth (%) -44.0 552.3 6.6 7.2 Chg. in financial assets -11 -9 -8 -3 AR turnover (x) 12.6 12.7 12.3 11.6 Other 93 0 0 0 Inventory turnover (x) 37.1 37.3 36.1 34.0 Cash flow from financing activities -5 391 6 2 AP turnover (x) 0.0 0.0 0.0 0.0 Chg. in financial liabilities 27 7 6 2 ROA (%) 1.6 9.2 8.4 8.1 Chg. in equity -4 384 0 0 ROE (%) 2.6 12.1 10.6 10.3 Dividends 0 0 0 0 ROIC (%) 28.3 163.4 333.0 504.4 Other -28 0 0 0 Debt-to-equity ratio (%) 41.8 24.8 26.5 25.2 Chg. in cash 142 471 51 106 Current ratio (%) 232.8 452.8 409.7 436.1 Beginning balance 105 247 718 769 Net debt-to-equity ratio (%) -53.1 -78.7 -76.0 -78.4 Ending balance 247 718 769 875 Interest coverage ratio (x) 29.0 47.7 60.0 61.0 Source: Company data, Mirae Asset Daewoo Research estimates

Mirae Asset Daewoo Research 27 September 10, 2020 Games

Appendix 1

Important disclosures and disclaimers Two-year rating and TP history

Company Date Rating TP (W) Company Date Rating TP (W) NCsoft (036570) 08/14/20 Buy 1,260,000 11/26/19 One year 700,000 07/10/20 Buy 1,310,000 11/26/18 Buy 700,000 06/01/20 Buy 1,150,000 08/27/18 No Coverage 05/12/20 Buy 970,000 05/10/18 Buy 500,000 01/07/20 Buy 910,000 Kakao Games (293490) 09/10/20 Buy 42,000

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 74.13% 15.92% 9.95% 0.00% Investment banking services 75.00% 11.11% 13.89% 0.00% * Based on recommendations over the 12 months through March 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 NCsoft 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

Mirae Asset Daewoo Research 28 September 10, 2020 Games

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 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.

Distribution United Kingdom: This report is being distributed by Mirae Asset Securities (UK) Ltd. in the United Kingdom only to (i) investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the “Order”), and (ii) high net worth companies and other persons to whom it may lawfully be communicated, falling within Article 49(2)(A) to (E) of the Order (all such persons together being referred to as “Relevant Persons”). This report is directed only at Relevant Persons. Any person who is not a Relevant Person should not act or rely on this report or any of its contents. United States: Mirae Asset Daewoo is not a registered broker-dealer in the United States and, therefore, is not subject to U.S. rules regarding the preparation of research reports and the independence of research analysts. This report is distributed in the U.S. by Mirae Asset Securities (USA) Inc., a member of FINRA/SIPC, to “major U.S. institutional investors” in reliance on the exemption from registration provided by Rule 15a-6(b)(4) under the U.S. Securities Exchange Act of 1934, as amended. All U.S. persons that receive this document by their acceptance hereof represent and warrant that they are a major U.S. institutional investor and have not received this report under any express or implied understanding that they will direct commission income to Mirae Asset Daewoo or its affiliates. Any U.S. recipient of this document wishing to effect a transaction in any securities discussed herein should contact and place orders with Mirae Asset Securities (USA) Inc. Mirae Asset Securities (USA) Inc. accepts responsibility for the contents of this report in the U.S., subject to the terms hereof, to the extent that it is delivered to a U.S. person other than a major U.S. institutional investor. Under no circumstances should any recipient of this research report effect any transaction to buy or sell securities or related financial instruments through Mirae Asset Daewoo. The securities described in this report may not have been registered under the U.S. Securities Act of 1933, as amended, and, in such case, may not be offered or sold in the U.S. or to U.S. persons absent registration or an applicable exemption from the registration requirements. Hong Kong: This report is distributed in Hong Kong by Mirae Asset Securities (HK) Limited, which is regulated by the Hong Kong Securities and Futures Commission. The contents of this report have not been reviewed by any regulatory authority in Hong Kong. This report is for distribution only to professional investors within the meaning of Part I of Schedule 1 to the Securities and Futures Ordinance of Hong Kong (Cap. 571, Laws of Hong Kong) and any rules made thereunder and may not be redistributed in whole or in part in Hong Kong to any person. All other jurisdictions: Customers in all other countries who wish to effect a transaction in any securities referenced in this report should contact Mirae Asset Daewoo or its affiliates only if distribution to or use by such customer of this report would not violate applicable laws and regulations and not subject Mirae Asset Daewoo and its affiliates to any registration or licensing requirement within such jurisdiction.

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Mirae Asset Daewoo Co., Ltd. (Seoul) Mirae Asset Securities (HK) Ltd. Mirae Asset Securities (UK) Ltd. One-Asia Equity Sales Team Units 8501, 8507-8508, 85/F 41st Floor, Tower 42 Mirae Asset Center 1 Building International Commerce Centre 25 Old Broad Street, 26 Eulji-ro 5-gil, Jung-gu, Seoul 04539 1 Austin Road West London EC2N 1HQ Korea Kowloon United Kingdom Hong Kong Tel: 82-2-3774-2124 Tel: 852-2845-6332 Tel: 44-20-7982-8000

Mirae Asset Securities (USA) Inc. Mirae Asset Wealth Management (USA) Inc. Mirae Asset Wealth Management (Brazil) CCTVM 810 Seventh Avenue, 37th Floor 555 S. Flower Street, Suite 4410, Rua Funchal, 418, 18th Floor, E-Tower Building New York, NY 10019 Los Angeles, California 90071 Vila Olimpia USA USA Sao Paulo - SP 04551-060 Brazil Tel: 1-212-407-1000 Tel: 1-213-262-3807 Tel: 55-11-2789-2100

PT. Mirae Asset Sekuritas Indonesia Mirae Asset Securities (Singapore) Pte. Ltd. Mirae Asset Securities (Vietnam) LLC Equity Tower Building Lt. 50 6 Battery Road, #11-01 7F, Saigon Royal Building Sudirman Central Business District Singapore 049909 91 Pasteur St. Jl. Jend. Sudirman, Kav. 52 -53 Republic of Singapore District 1, Ben Nghe Ward, Ho Chi Minh City Jakarta Selatan 12190 Vietnam Indonesia Tel: 62-21-515-3281 Tel: 65-6671-9845 Tel: 84-8-3911-0633 (ext.110) Mirae Asset Securities Mongolia UTsK LLC Mirae Asset Investment Advisory (Beijing) Co., Ltd Beijing Representative Office #406, Blue Sky Tower, Peace Avenue 17 2401B, 24th Floor, East Tower, Twin Towers 2401A, 24th Floor, East Tower, Twin Towers 1 Khoroo, Sukhbaatar District B12 Jianguomenwai Avenue, Chaoyang District B12 Jianguomenwai Avenue, Chaoyang District Ulaanbaatar 14240 Beijing 100022 Beijing 100022 Mongolia China China

Tel: 976-7011-0806 Tel: 86-10-6567-9699 Tel: 86-10-6567-9699 (ext. 3300) Shanghai Representative Office Ho Chi Minh Representative Office 38T31, 38F, Shanghai World Financial Center 7F, Saigon Royal Building 100 Century Avenue, Pudong New Area 91 Pasteur St. Shanghai 200120 District 1, Ben Nghe Ward, Ho Chi Minh City China Vietnam

Tel: 86-21-5013-6392 Tel: 84-8-3910-7715

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