NCSOFT (036570 KS) Strong momentum to come from new releases and 1Q earnings
Game Raising 1Q16F OP on higher-than-expected Blade & Soul US revenue We now forecast NCSOFT’s 1Q revenue at W229bn (+21.8% YoY) and operating profit Company Update at W85bn (+90.5% YoY), which is well above the current consensus (W67.3bn). We March 11, 2016 adjusted up our 1Q earnings estimate, as we expect revenue from Blade & Soul US (launched on January 19 th ) to be higher than previously anticipated, given the title’s
stabilizing traffic trends. (Maintain) Buy We upped our Blade & Soul US revenue estimates from W10bn to W20bn for 1Q and from W10bn to W15bn for 2Q-4Q each. But even with the revision s, our assumptions Target Price (12M, W) 420,000 appear conservative compared with the revenues recorded from Blade & Soul Taiwan and Guild Wars 2 . Share Price (03/10/16, W) 263,500 We see a chance of Blade & Soul US revenue exceeding W30bn in 1Q, if we model the Expected Return 59% revenue per server from Blade & Soul Taiwan (released on November 26, 2014 based on a microtransaction model) into our estimates (13 servers in Taiwan vs. 34 in the US).
OP (15F, Wbn) 237 Traditional titles, including Lineage and Blade & Soul , are also showing stable traffic. Consensus OP (15F, Wbn) 238 Meanwhile, we did not incorporate potential earnings from the upcoming Lineage I microtransaction event (scheduled for March 16 th ) and from Blade & Soul Mobile in EPS Growth (15F, %) -26.9 China (non-wipe launch on March 7 th ; no. 1 downloaded iOS game in China as of March Market EPS Growth (15F, %) 20.0 10 th ) in our revised 1Q estimates due to the lack of visi bility on both fronts. We hence P/E (15F, x) 27.8 see further upside risks to our 1Q forecasts. Market P/E (15F, x) 11.5 KOSPI 1,969.33 New title momentum to continue into 2Q Market Cap (Wbn) 5,778 The launch of Blade & Soul US in January and Blade & Soul Mobile in China this March Shares Outstanding (mn) 22 served as upside share catalysts in 1Q. Looking ah ead, we see more momentum coming Free Float (%) 83.3 from new titles in 2Q. Beta tests for two mobile titles based on Lineage I intellectual Foreign Ownership (%) 33.4 property (IP)—Lineage Red Knights (RK) and Lineage on Mobile (which are due for Beta (12M) 0.90 commercial release in 2H)—as well as for the highly anticipated PC title Lineage Eternal 52-Week Low 169,000 and the new AMP Project , are all scheduled to take place in 2Q. The company is also set 52-Week High 263,500 to publish one or two mobile titles during the quarter. (%)(%)(%) 1M1M1M 6M6M6M 12M12M12M Looking further ahead, a mobile title based on Lineage II IP currently being developed by Absolute 9.8 35.8 53.6 Netmarble is expected to be rolled out in 3Q. Master X Master (MXM) is also set for Relative 6.9 35.3 54.8 commercialization in 3Q, after completing beta testing (March 9 th to 22 nd ) in Korea,
160 NCSOFT KOSPI Japan, and Taiwan.
140 Raise TP to W420,000 in light of visible earnings momentum 120 We remain Buy on NCSOFT and raise our target price to W420,000 (from W400,000). 100 We adjusted up our 2016F EPS by 5.5%, reflecting our 1Q earnings revision. If the traffic stabilization of Blade & Soul US and Blade & Soul Mobile in China extends into March, we 80 3.15 7.15 11.15 3.16 see a high possibility of further upward adjustments to our 1Q estimates.
Daewoo Securities CCo.,o., Ltd. FY (Dec.) 12/12 12/13 12/14 12/15F 12/16F 12/17F Revenue (Wbn) 754 757 839 838 970 1,084 [Internet/Game/Entertainment] OP (Wbn) 151 205 278 238 348 406
Chang-kwean Kim OP margin (%) 20.0 27.1 33.1 28.4 35.9 37.5 +822-768-4321 NP (Wbn) 156 159 230 168 280 329 [email protected] EPS (W) 7,120 7,245 10,487 7,669 12,785 14,996 ROE (%) 16.8 14.8 18.4 11.9 17.9 18.2 Jeong-yeob Park +822-768-4124 P/E (x) 21.1 34.3 17.4 27.8 20.6 17.6 [email protected] P/B (x) 3.0 4.4 2.7 3.0 3.2 2.8 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
Analysts who prepared this report are registered as research analysts in Korea but not in any other jurisdiction, including t he U.S. PLEASE SEE ANALYST CERTIFICATIONS AND IMPORIMPORTANTTANT DISCLOSURESDISCLOSURES & DISCLAIMERS IN APPENDIX 1 AT THE END OF REPORT.
March 11, 2016 NCSOFT
Earnings and forecasts
Table 111.1. Quarterly and annual earnings (Wbn, %) 1Q11Q11Q151Q1 555 2Q12Q12Q152Q1 555 3Q13Q13Q153Q1 555 4Q14Q14Q154Q1 555 1Q11Q11Q16F1Q1 6F6F6F 2Q12Q12Q16F2Q1 6F6F6F 3Q13Q13Q16F3Q1 6F6F6F 4Q14Q14Q164Q1 666FFFF 2012012014201 444 2012012015201 555 2012012016201 666FFFF Revenue 188 218 196 237 229 230 244 267 839 838 970 Lineage I 66 85 78 83 80 85 77 81 263 313 324 Lineage II 11 16 16 20 19 18 19 22 59 63 78 Aion 18 20 17 19 17 19 18 20 94 74 74 Blade & Soul 27 30 25 32 47 42 43 41 83 114 174 Guild Wars 2 20 22 21 37 23 20 22 20 86 101 85 WildStar 3 2 2 3 2 2 1 1 50 9 6 MXM 0 0 0 0 0 0 14 21 0 0 35 Royalties 26 21 23 29 27 25 25 29 137 99 106 Other 18 20 15 14 15 19 24 32 67 67 89 Revenue proproproportionpro portion Lineage I 35.1 39.3 40.0 35.1 35.0 37.1 31.7 30.4 31.4 37.3 33.4 Lineage II 5.9 7.5 8.0 8.5 8.3 7.9 7.8 8.2 7.1 7.5 8.1 Aion 9.7 9.2 8.6 7.8 7.5 8.3 7.3 7.5 11.3 8.8 7.6 Blade & Soul 14.2 13.7 12.7 13.7 20.5 18.2 17.8 15.5 9.9 13.6 17.9 Guild Wars 2 10.6 10.3 10.6 15.8 9.8 8.8 9.1 7.5 10.2 12.0 8.8 WildStar 1.4 1.0 0.9 1.1 0.8 0.7 0.6 0.2 5.9 1.1 0.6 MXM 0.0 0.0 0.0 0.0 0.0 0.0 5.7 7.8 0.0 0.0 3.6 Royalties 13.6 9.6 11.7 12.3 11.8 10.9 10.2 10.9 16.3 11.8 10.9 Other 9.5 9.4 7.6 5.7 6.4 8.1 9.7 12.0 8.0 7.9 9.2 Operating expenses 143 150 145 162 144 152 152 175 561 601 622 Operating profit 45 67 51 75 85 78 92 93 278 237 348 OP margin (%) 23.9 30.8 25.9 31.6 37.3 33.7 37.8 34.6 33.2 28.3 35.8 Net profit 36 58 31 42 70 64 72 72 227 166 277 Net margin (%) 18.9 26.6 15.7 17.8 30.6 27.8 29.4 26.8 27.1 19.8 28.6 YoY growth Revenue 5.6 1.7 -7.5 0.8 21.8 5.7 24.7 12.7 10.8 -0.1 15.7 Lineage I 61.0 50.3 14.2 -14.0 21.3 -0.1 -1.1 -2.3 -8.6 18.9 3.6 Lineage II -5.0 19.9 5.2 3.0 73.0 10.9 22.0 9.5 4.1 5.8 24.1 Aion -17.8 9.5 -49.1 -11.2 -6.4 -5.0 6.7 7.6 -1.4 -21.9 0.5 Blade & Soul 39.2 55.6 26.1 31.9 75.2 40.8 74.2 27.3 20.1 37.7 52.4 Guild Wars 2 -20.3 1.2 5.1 93.7 12.4 -9.7 7.3 -46.5 -30.6 17.4 -15.5 WildStar - -92.6 -89.3 -51.4 -28.0 -24.4 -15.0 -75.2 - -81.7 -38.6 Royalties -42.5 -44.2 3.1 -10.1 5.2 19.0 8.8 -0.5 107.5 -27.9 7.3 Other 23.9 13.1 -16.1 -16.4 -18.0 -8.9 59.6 135.4 15.9 -0.6 33.3 Operating profit 0.8 3.3 -37.8 -14.3 90.5 15.5 82.3 23.5 35.5 -14.6 46.4 Net profit -2.7 9.3 -59.5 -32.2 97.0 10.4 134.3 69.5 43.4 -26.9 66.8 Notes: All figures are based on consolidated K-IFRS Source: Company data, KDB Daewoo Securities Research estimates
Table 222.2. Earnings forecast revisions (Wbn, W, %, %p) Previous Revised Change 2016F2016F2016F 2017F2017F2017F 2016F2016F2016F 2017F2017F2017F 2016F2016F2016F 2017F2017F2017F Revenue 950 1,074 970 1,084 2.1 0.9 Operating profit 329 395 348 406 5.8 2.8 Net profit 266 320 280 329 5.3 2.8 EPS 12,123 14,596 12,785 14,996 5.5 2.7 OP margin 34.6 36.8 35.9 37.5 1.2 0.7 Net margin 28.0 29.8 28.9 30.4 0.9 0.6 Notes: All figures are based on consolidated K-IFRS Source: Company data, KDB Daewoo Securities Research estimates
KDB Daewoo Securities Research 2
March 11, 2016 NCSOFT
New games: Blade & Soul US and Blade & Soul China mobile
Table 333.3. Blade & Soul US revenue forecast based on Blade & Soul Taiwan (Wmn, days) 1Q141Q141Q14 2Q142Q142Q14 3Q143Q143Q14 4Q144Q144Q14 1Q151Q151Q15 2Q152Q152Q15 3Q153Q153Q15 4Q154Q154Q15 1Q16F 2Q16F 3Q16F 4Q16F Total revenue in 2,378 2,152 2,130 6,519 10,144 12,328 8,911 7,486 Taiwan Lineage revenue in 2,141 Taiwan B&S revenue in 4,378 8,003 10,187 6,770 5,345 Taiwan No. of US B&S servers/ 3.40 2.62 no. of Taiwan B&S servers Days in-service 35 (Taiwan) 72 (US) B&S US revenue 30,621 20,931 26,643 17,706 forecast Reflected revenue 20,000 15,000 15,000 15,000 Note: Assuming number of B&S servers will remain the same Source: Company data, KDB Daewoo Securities Research
Table 444.4. Blade & Soul USUSUS revenue forecast based on Guild Wars 2 (Wmn) 1Q141Q141Q14 2Q142Q142Q14 3Q143Q143Q14 4Q144Q144Q14 1Q151Q151Q15 2Q152Q152Q15 3Q153Q153Q15 4Q154Q154Q15
GW2 revenue 25,142 21,506 19,686 19,272 20,026 22,470 20,699 37,331 In-game item sales
90% assumption 22,628 19,355 17,717 17,345 18,023 20,223 18,629 33,598
80% assumption 20,114 17,205 15,749 15,418 16,021 17,976 16,559 29,865 CD sales
10% assumption 2,514 2,151 1,969 1,927 2,003 2,247 2,070 3,733
20% assumption 5,028 4,301 3,937 3,854 4,005 4,494 4,140 7,466 Quarterly 1Q16F 2Q16F 3Q16F 4Q16F average
B&S US min 24,136 20,646 18,899 18,501 20,545
B&S US max 40,730 34,840 31,891 31,221 34,670 Note: 80-90% of Guild Wars 2 revenue is attributable to item sales, while 10-20% is from CD sales; Blade & Soul US ’ February traffic in North America stabilized at 1.2- 1.8x that of Guild Wars 2 Source: Company data, KDB Daewoo Securities Research
Figure 111.1. Number of unique visitors of Blade & Soul US and Guild Wars 2
(mn persons) 1.2 bladeandsoul.com Commercialization on Jan. 19th guildwars2.com 1.0
0.8
0.6
0.4 CBT started on 0.2 Oct. 30th
0.0 1/15 2/15 3/15 4/15 5/15 6/15 7/15 8/15 9/15 10/15 11/15 12/15 1/16 Source: Compete.com, KDB Daewoo Securities Research
KDB Daewoo Securities Research 3
March 11, 2016 NCSOFT
Figure 222.2... US daily reach of comparable RPG games around each game launch
(%) aiononline.com (L) (%) 4 bladeandsoul.com (R) 0.5 www.bladeandsoul.com (R)
0.4 3
0.3 2 0.2
1 0.1
0 0.0 D-53 D-33 D-13 D+7 D+27 D+47 D+67 D+87 D+107 D+127 D+147
Note: Daily reach measures how many people visit a website as a percentage of all U.S. internet users online in a given day. Source: Compete.com, KDB Daewoo Securities Research
Figure 333.3. US daily reach of comparable RPG games
(%) 0.5 bladeandsoul.com guildwars2.com
0.4
0.3
0.2
0.1
0.0 1/1 1/8 1/15 1/22 1/29 2/5 2/12 2/19 2/26
Note: Daily reach measures how many people visit a website as a percentage of all U.S. internet users online in a given day. Source: Compete.com, KDB Daewoo Securities Research
Figure 444.4. US daily reach of Blade & SoS oooulul USul US , LoLLoLLoL , and Guild Wars 2 after the time of B&S launch
(%) 0.6 1st weekend after launch 2nd weekend after launch 0.5 3rd weekend after launch 4th weekend after launch 0.4 5th weekend after launch 6th weekend after launch
0.3
0.2
0.1
0.0 B&S League of Legends Guild Wars 2
Note: Daily reach measures how many people visit a website as a percentage of all U.S. internet users online in a given day. Source: Compete.com, KDB Daewoo Securities Research
KDB Daewoo Securities Research 4
March 11, 2016 NCSOFT
Figure 555.5. Game download & revenue rank of iOS market in ChinaChina ((3/10)3/10)
Source: Appannie, KDB Daewoo Securities Research
Figure 666.6. Blade & Soul China mobile being featured on Tencent app market
Source: Tencent, KDB Daewoo Securities Research
KDB Daewoo Securities Research 5
March 11, 2016 NCSOFT
Existing games’ performance
Figure 777.7. ARPU trends by game Figure 888.8. Relative changes in ARPU by game
(W) (p) 180,000 Lineage 2,500 Lineage Lineage II Lineage II Aion 150,000 Aion 2,000
120,000 1,500 90,000 1,000 60,000
500 30,000
0 0 1/11 7/11 1/12 7/12 1/13 7/13 1/14 7/14 1/15 7/15 1/16 1/11 7/11 1/12 7/12 1/13 7/13 1/14 7/14 1/15 7/15 1/16
Notes: Monthly revenue (quarterly revenue divided by three) divided by the sum Note: As of January 2011; B&S revenue includes revenue from Japan and Taiwan of daily average concurrent users for each month; this calculation Source: Gametrics, company data, KDB Daewoo Securities Research provides a good measure of changes in per-user revenue Source: Gametrics, company data, KDB Daewoo Securities Research
Figure 999.9. Lineage I concurrent users and revenue trends
('000 people) (Wbn) 400 Lineage I quarterly revenue (R) 120 Monthly sum of Lineage I concurrent users (L) 100 300 80
200 60
40 100 20
0 0 1/11 7/11 1/12 7/12 1/13 7/13 1/14 7/14 1/15 7/15 1/16
Source: Gametrics, Company data, KDB Daewoo Securities Research
Figure 101010.10 . Lineage IIIIII concurrent users and revenue trends
('000 people) (Wbn) 400 Lineage II quarterly revenue (R) 35 Monthly sum of Lineage II concurrent users (L) 30 300 25
20 200 15
10 100 5
0 0 1/11 7/11 1/12 7/12 1/13 7/13 1/14 7/14 1/15 7/15 1/16
Source: Gametrics, Company data, KDB Daewoo Securities Research
KDB Daewoo Securities Research 6
March 11, 2016 NCSOFT
Figure 111111.11 . Aion concurrent users and revenue trends
('000 people) (Wbn) 1,800 Aion quarterly revenue (R) 70 Monthly sum of Aion concurrent users (L) 1,500 60
50 1,200 40 900 30 600 20
300 10
0 0 1/11 7/11 1/12 7/12 1/13 7/13 1/14 7/14 1/15 7/15 1/16
Source: Gametrics, Company data, KDB Daewoo Securities Research
Figure 121212.12 . Blade & Soul concurrent users and revenue trends
('000 people) (Wbn) 2,000 B&S quarterly revenue (R) 50 Monthly sum of B&S concurrent users (L) 45 1,600 40 35 1,200 30 25 800 20 15 400 10 5 0 0 1/11 7/11 1/12 7/12 1/13 7/13 1/14 7/14 1/15 7/15 1/16
Source: Gametrics, Company data, KDB Daewoo Securities Research
Figure 131313.13 . Annual revenue of Lineage I
(Wbn) 420 Lineage I revenue growing continuously thanks to: 338 350 1) Increasing ARPU 324 2) Activation of dormant accounts due to events 302 280
210
140
70
0 98 00 02 04 06 08 10 12 14 16F
Source: Company data, KDB Daewoo Securities Research
KDB Daewoo Securities Research 7
March 11, 2016 NCSOFT
Valuation and lineup
Figure 141414.14 . NCSOFT’s historical P/E and past game launches: MMultipleultiple games to launch in 2016, implying valuation upside
(x) City of LineageI Heroes Tabula Rasa Tabula Rasa Aion B&S in Korea Multiple mobile & PC 60 in the US Lineage II Guild Wars 2 in the US/EU inthe US/EU in Korea in the US/EU in Korea games to launch in 2016: Valuation upside 62.4 52.3 50 51.3 50.1
40.1 40.9 40 B&S in China 32.4 30
19.9 20
12.3 10 12.9 15FP/E24x 16FP/E 21x 9.0 7.4 0 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 Notes: Based on earnings as of end of each fiscal year Source: Company data, KDB Daewoo Securities Research
Figure 151515.15 . Expected release schedule
GameGameGame PeriodPeriodPeriod PC Lineage Eternal Jun. 15 Focus group test (1st) 4Q15F Focus group test (2nd) 1H16F Closed beta test 2H16F Global commercialization
Guild Wars 2 expansion pack Jun. 15~ Pre-sale in US/EU Oct. 15~ Launch in US/EU
MXM Mar. 16 Commercialization after open beta test in Korea, Japan and Taiwan 3Q16F Commercialization after tests in China
Project AMP 2Q16F CBT
Mobile B&S Mobile Jun. 15 2nd technical test Sep. 15 Final test Mar. 16 Commercialization in China 2Q16F-3Q16F Commercialization in Korea/Japan
Aion Legions 4Q16F Commercialization in Korea
Lineage RK 2Q16F CBT
Lineage on mobile 2Q16F CBT
Mobile Lineage 2 2Q16F CBT (under Netmarble games 2H16F Commercialization in Korea development) Mobile Lineage 2 2Q16F CBT (under Snail games 2H16F Commercialization in Korea/Japan development)
Source: Company data, KDB Daewoo Securities Research
KDB Daewoo Securities Research 8
March 11, 2016 NCSOFT
Table 555.5. Earnings forecasts for global internet companies (Wbn, %) Market Revenue Operating profit OP margin Net profit Net margin EPSEPSEPS
capcapcap 151515 16F16F16F 17F17F17F 151515 16F16F16F 17F17F17F 151515 16F16F16F 17F17F17F 151515 16F16F16F 17F17F17F 151515 16F16F16F 17F17F17F 151515 16F16F16F 17F17F17F NCSOFT 5,778 838 989 1,155 237 333 426 28.3 33.6 36.9 165 268 342 19.7 27.1 29.6 8,834 12,301 15,685 NHN Ent. 1,125 645 829 901 -54 -37 8 -8.4 -4.4 0.9 164 -22 16 25.4 -2.6 1.7 8,766 -1,087 927 Gamevil 609 152 179 201 3 11 16 2.1 6.0 7.9 23 34 40 15.2 19.2 19.8 3,488 5,265 6,062 Com2us 1,576 434 516 556 166 202 215 38.3 39.1 38.7 79 156 166 18.3 30.2 29.8 9,642 12,083 12,796 Wemade 558 127 165 176 -12 35 40 -9.3 21.2 22.7 -107 26 31 -84.8 15.9 17.8 13,252 1,672 1,937 NEXON 8,106 1,780 2,202 2,317 583 742 795 32.7 33.7 34.3 516 627 668 29.0 28.5 28.8 1,198 1,467 1,570 Activision 27,233 5,281 7,529 8,194 1,493 2,429 2,779 28.3 32.3 33.9 1,010 1,382 1,740 19.1 18.4 21.2 1,364 2,144 2,458 Blizzard Electronic 23,738 5,422 5,791 6,405 1,516 1,767 2,149 28.0 30.5 33.6 789 1,300 1,407 14.6 22.5 22.0 3,672 4,232 5,087 Arts Take-Two 3,549 1,818 2,142 2,375 263 351 406 14.5 16.4 17.1 80 153 176 4.4 7.2 2,104 2,289 2,544 Zynga 2,228 866 896 959 -165 17 38 -19.1 1.9 4.0 -138 -108 -44 -15.9 -12.0 -4.6 -115 13 59 Nintendo 24,113 5,572 6,685 8,560 413 739 1,236 7.4 11.1 14.4 266 493 844 4.8 7.4 9.9 2,193 4,078 6,857 Sega 3,636 3,805 3,954 4,099 162 267 329 4.3 6.8 8.0 61 174 219 1.6 4.4 5.4 218 807 1,039 Sammy Namco 5,604 6,092 6,263 6,499 512 621 658 8.4 9.9 10.1 347 414 440 5.7 6.6 6.8 1,581 1,888 2,012 Bandai Konami 4,471 2,686 2,645 2,675 303 345 351 11.3 13.0 13.1 164 219 225 6.1 8.3 8.4 1,194 1,606 1,658 DeNA 2,876 1,578 1,821 2,044 227 354 414 14.4 19.4 20.3 138 221 262 8.7 12.2 12.8 972 1,590 1,942 GREE 1,521 782 753 759 169 146 150 21.6 19.4 19.8 100 89 89 12.8 11.8 11.8 428 380 381 Gungho 3,299 1,444 1,552 1,363 678 748 640 46.9 48.2 47.0 406 454 387 28.1 29.2 28.4 383 446 388 Online Netease. 22,046 4,108 6,442 7,946 1,310 1,650 1,851 31.9 25.6 23.3 1,213 1,509 1,707 29.5 23.4 21.5 9,196 12,636 14,225 com Tencent 210,835 18,608 23,942 30,327 7,126 9,087 11,444 38.3 38.0 37.7 5,379 7,013 8,958 28.9 29.3 29.5 627 801 1,029 Kingsoft 3,105 1,040 1,577 2,134 79 203 352 7.6 12.9 16.5 60 150 275 5.7 9.5 12.9 81 145 235 Average 16.4 20.7 22.0 8.9 14.8 16.5 Notes: Based on Bloomberg consensus as of Mar. 10 th Source: Bloomberg, KDB Daewoo Securities Research
Table 666.6. Valuation comparison of global internet companiescompanies (x, %) Market P/EP/EP/E P/BP/BP/B P/SP/SP/S EV/EBITDA ROEROEROE ROAROAROA
capcapcap 151515 16F16F16F 17F17F17F 151515 16F16F16F 17F17F17F 151515 16F16F16F 17F17F17F 151515 16F16F16F 17F17F17F 151515 16F16F16F 17F17F17F 151515 16F16F16F 17F17F17F NCSOFT 5,778 29.8 21.4 16.8 3.3 3.1 2.7 6.6 5.8 5.0 11.2 13.1 10.4 12.2 15.6 18.1 9.8 12.5 14.5 NHN Ent. 1,125 6.6 - 62.0 0.8 0.8 0.8 1.7 1.4 1.2 - 50.4 11.9 13.6 -1.6 1.2 10.8 -1.5 0.8 Gamevil 609 26.7 17.7 15.4 2.9 2.5 2.1 4.0 3.4 3.0 71.6 45.4 34.2 11.4 14.7 14.7 9.2 9.3 9.9 Com2us 1,576 12.7 10.1 9.6 3.3 2.5 2.0 3.4 3.1 2.8 6.8 5.8 5.5 32.2 29.5 23.8 30.4 26.1 21.4 Wemade 558 2.5 19.9 17.1 1.4 1.4 1.3 4.2 3.4 3.2 - 12.2 10.4 67.5 6.7 7.4 49.6 4.8 5.7 NEXON 8,106 13.8 13.2 12.3 2.0 1.8 1.6 4.0 3.8 3.6 7.6 6.3 6.0 15.4 14.4 13.4 12.8 12.6 11.1 Activision 27,233 25.6 17.2 15.0 2.8 3.2 2.7 4.8 3.6 3.3 16.9 11.4 10.2 11.5 17.2 14.5 6.0 12.6 12.1 Blizzard Electronic Arts 23,738 20.8 18.1 15.5 6.2 4.6 3.6 4.4 4.1 3.8 11.7 10.2 9.2 27.6 25.9 24.2 15.1 15.6 15.8 Take-Two 3,549 19.8 18.2 16.5 7.3 3.3 3.9 1.9 1.7 1.5 10.4 7.5 7.3 26.5 15.4 18.9 5.4 8.0 12.0 Zynga 2,228 - 215.0 43.0 1.1 1.1 1.1 2.6 2.5 2.3 - 22.4 10.8 -6.4 -0.4 2.1 -5.2 -1.2 1.2 Nintendo 24,113 78.4 42.2 25.4 1.6 1.6 1.5 4.4 3.6 2.9 32.5 19.5 10.7 2.2 3.5 6.6 2.1 3.9 6.9 Sega Sammy 3,636 65.0 17.6 13.5 0.9 0.9 0.9 1.0 1.0 0.9 7.7 5.9 5.7 1.3 4.6 5.3 1.5 2.3 2.4 Namco Bandai 5,604 16.3 13.7 13.0 1.6 1.5 1.4 0.9 0.9 0.9 5.6 4.8 4.5 10.5 11.3 10.6 6.6 7.6 7.5 Konami 4,471 26.7 19.9 19.3 1.8 1.7 1.6 1.7 1.7 1.7 7.5 7.3 7.4 6.8 8.4 8.3 4.7 7.0 7.0 DeNA 2,876 20.3 12.4 10.3 1.4 1.3 1.1 1.9 1.6 1.5 7.2 5.1 4.5 7.5 10.6 11.0 7.6 8.3 8.4 GREE 1,521 15.2 17.2 17.2 1.3 1.3 1.2 2.0 2.1 2.1 4.2 4.3 4.3 9.2 8.1 7.7 8.9 7.6 7.2 Gungho Online 3,299 7.2 7.3 8.4 3.2 2.0 1.7 2.0 2.2 2.5 3.2 3.2 3.6 39.9 31.7 23.3 32.3 36.9 25.9 Netease.com 22,046 17.9 13.6 12.1 4.1 3.4 3.0 5.3 3.4 2.8 14.0 10.0 8.9 25.6 25.9 25.2 18.9 19.0 17.9 Tencent 210,835 36.1 28.2 22.0 10.3 7.8 6.0 11.4 8.9 7.0 26.0 20.6 16.5 31.1 30.6 29.8 16.2 17.2 17.9 Kingsoft 3,105 30.1 16.7 10.5 2.7 2.3 1.9 3.0 2.0 1.5 20.0 9.5 5.7 8.6 16.2 24.2 3.6 6.7 10.3 Average 24.8 29.6 21.7 3.0 2.5 2.2 3.4 2.9 2.6 17.4 13.8 10.2 15.4 13.3 13.9 11.0 10.0 10.4 Notes: Based on Bloomberg consensus as of Mar. 10 th Source: Bloomberg, KDB Daewoo Securities Research
KDB Daewoo Securities Research 9
March 11, 2016 NCSOFT
NCSOFT (036570 KS/Buy/TP: W420,000)
Comprehensive Income Statement (Summarized) Statement of Financial Condition (Summarized) (Wbn) 12/14 12/15F 12/16F 12/17F (Wbn) 12/14 12/15F 12/16F 12/17F Revenue 839839839 838838838 970970970 1,0841,0841,084 Current Assets 1,0201,0201,020 1,1491,1491,149 1,4351,4351,435 1,7441,7441,744 Cost of Sales 220220220 219219219 222222222 248248248 Cash and Cash Equivalents 203 332 490 688 Gross Profit 618618618 619619619 748748748 836836836 AR & Other Receivables 90 91 105 117 SG&A Expenses 340340340 382382382 400400400 430430430 Inventories 1 1 1 1 Operating Profit (Adj) 278278278 237237237 348348348 406406406 Other Current Assets 726 725 839 938 Operating Profit 278278278 237237237 348348348 406406406 NonNonNon-Non ---CurrentCurrent Assets 679679679 648648648 629629629 613613613 NonNonNon-Non ---OperatingOperating ProfitProfitProfit 111111 222 444 242424 Investments in Associates 29 29 34 38 Net Financial Income 17 21 26 32 Property, Plant and Equipment 241 215 192 172 Net Gain from Inv in Associates -2 -1 -1 -1 Intangible Assets 95 89 85 81 Pretax Profit 289 239 352 430 Total Assets 1,6991,6991,699 1,7971,7971,797 2,0652,0652,065 2,3572,3572,357 Income Tax 61 73 75 105 Current Liabilities 245245245 245245245 284284284 317317317 Profit from Continuing Operations 228 166 277 325 AP & Other Payables 25 25 29 33 Profit from Discontinued Operations 0 0 0 0 Short-Term Financial Liabilities 0 0 0 0 Net Profit 228 166 277 325 Other Current Liabilities 220 220 254 284 Controlling Interests 230 168 280 329 NonNonNon-Non ---CurrentCurrent Liabilities 787878 787878 909090 100100100 Non-Controlling Interests -2 -2 -3 -3 Long-Term Financial Liabilities 1 1 1 1 Total Comprehensive ProfitProfitProfit 224224224 166166166 277277277 325325325 Other Non-Current Liabilities 77 77 89 99 Controlling Interests 228 169 282 331 Total Liabilities 323323323 323323323 374374374 417417417 Non-Controlling Interests -4 -3 -4 -5 Controlling Interests 1,3611,3611,361 1,4601,4601,460 1,6811,6811,681 1,9331,9331,933 EBITDA 315 269 375 430 Capital Stock 11 11 11 11 FCF (Free Cash Flow) 244 198 336 376 Capital Surplus 222 222 222 222 EBITDA Margin (%) 37.5 32.1 38.7 39.6 Retained Earnings 1,234 1,334 1,554 1,807 Operating Profit Margin (%) 33.2 28.3 35.8 37.4 NonNonNon-Non ---ControllingControlling Interests 151515 131313 101010 777 Net Profit Margin (%) 27.4 20.1 28.9 30.3 Stockholders' Equity 1,3761,3761,376 1,4731,4731,473 1,6911,6911,691 1,9401,9401,940
Cash Flows (Summarized) Forecasts/Valuations (Summarized) (Wbn) 12/14 12/15F 12/16F 12/17F 12/14 12/15F 12/16F 12/17F Cash Flows from Op Activities 264 198 336 376 P/E (x) 17.4 27.8 20.6 17.6 Net Profit 228 166 277 325 P/CF (x) 11.9 18.8 16.4 13.8 Non-Cash Income and Expense 109 82 74 94 P/B (x) 2.7 3.0 3.2 2.8 Depreciation 30 26 23 20 EV/EBITDA (x) 9.9 13.6 12.0 9.8 Amortization 6 5 4 4 EPS (W) 10,487 7,669 12,785 14,996 Others 72 50 47 71 CFPS (W) 15,336 11,307 16,040 19,145 Chg in Working Capital -21 -1 31 27 BPS (W) 66,702 71,247 81,297 92,804 Chg in AR & Other Receivables -11 0 -14 -12 DPS (W) 3,430 2,747 3,600 4,600 Chg in Inventories 0 0 0 0 Payout ratio (%) 30.1 36.0 27.6 30.1 Chg in AP & Other Payables 1 0 1 1 Dividend Yield (%) 1.9 1.3 1.4 1.7 Income Tax Paid ---69 -696969 ---73-737373 ---75-757575 ---105-105105105 Revenue Growth (%) 10.8 -0.1 15.7 11.8 Cash Flows from Inv Activities -176 0 -113 -98 EBITDA Growth (%) 30.9 -14.5 39.3 14.5 Chg in PP&E -19 0 0 0 Operating Profit Growth (%) 35.5 -14.6 46.4 16.8 Chg in Intangible Assets -2 0 0 0 EPS Growth (%) 44.7 -26.9 66.7 17.3 Chg in Financial Assets -146 0 -113 -98 Accounts Receivable Turnover (x) 9.8 9.3 10.0 9.9 Others ---9 -999 000 000 000 Inventory Turnover (x) Cash Flows from Fin Activities -12 -69 -60 -77 Accounts Payable Turnover (x) 27.7 26.1 24.6 24.2 Chg in Financial Liabilities -8 0 0 0 ROA (%) 14.3 9.5 14.4 14.7 Chg in Equity 1 0 0 0 ROE (%) 18.4 11.9 17.9 18.2 Dividends Paid -12 -69 -60 -77 ROIC (%) 93.7 77.0 156.3 233.1 Others 666 000 000 000 Liability to Equity Ratio (%) 23.5 21.9 22.1 21.5 Increase (Decrease) in Cash 79 129 158 197 Current Ratio (%) 415.5 468.5 505.8 549.9 Beginning Balance 123 203 332 490 Net Debt to Equity Ratio (%) Ending Balance 203203203 332332332 490490490 688688688 Interest Coverage Ratio (x) Source: Company data, KDB Daewoo Securities Research estimates
KDB Daewoo Securities Research 10
March 11, 2016 NCSOFT
APPENDIX 1
Important Disclosures & Disclaimers 222-2---YearYear Rating and Target Price History
Company (Code) DateDateDate RatingRatingRating Target Price (W) NCSOFT NCSOFT(036570) 03/11/2016 Buy 420,000 500,000 02/05/2016 Buy 400,000 400,000 05/13/2015 Buy 270,000 01/07/2015 Buy 240,000 300,000 07/16/2014 Buy 220,000 200,000 05/18/2014 Buy 280,000 02/25/2014 Buy 310,000 100,000
0 Mar 14 Mar 15 Mar 16
Stock Ratings Industry Ratings Buy : Relative performance of 20% or greater Overweight : Fundamentals are favorable or improving Trading Buy : Relative performance of 10% or greater, but with volatility Neutral : Fundamentals are steady without any material changes Hold : Relative performance of -10% and 10% Underweight : Fundamentals are unfavorable or worsening Sell : Relative performance of -10% Ratings and Target Price History (Share price ( ─), Target price ( ▬), Not covered ( ■), Buy ( ▲), Trading Buy ( ■), Hold ( ●), Sell ( ◆)) * Our investment rating is a guide to the relative return of the stock versus the market over the next 12 months. * Although it is not part of the official ratings at Daewoo Securities, we may call a trading opportunity in case there is a technical or short-term material development. * The target price was determined by the research analyst through valuation methods discussed in this report, in part based on the analyst’s estimate of future earnings. * The achievement of the target price may be impeded by risks related to the subject securities and companies, as well as general market and economic conditions.
Equity Ratings Distribution BuyBuyBuy Trading Buy HoldHoldHold SellSellSell 71.08% 11.76% 17.16% 0.00% * Based on recommendations in the last 12-months (as of December 31, 2015)
Disclosures As of the publication date, Daewoo Securities Co., Ltd and/or its affiliates do not have any special interest with the subject company and do not own 1% or more of the subject company's shares outstanding.
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 and regulations thereof. Opinions expressed in this publication about the subject securities and companies accurately reflect the personal views of the Analysts primarily responsible for this report. Daewoo Securities Co., Ltd. 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. No part of the compensation of the Analysts was, is, or will be directly or indirectly related to the specific recommendations or views contained in this report but, like all employees of Daewoo Securities, the Analysts receive compensation that is impacted by overall firm profitability, which includes revenues from, among other business units, the institutional equities, investment banking, proprietary trading and private client division. 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 Daewoo Securities Co., Ltd. except as otherwise stated herein.
Disclaimers This report is published by Daewoo Securities Co., Ltd. (“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 from sources believed to be reliable and in good faith, but such information has not been independently verified and 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. If this report is 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. Daewoo, its affiliates and their directors, officers, employees and agents do not accept any liability for any loss arising from the use hereof. This report is for general information purposes only and it is not and should not be construed as an offer or a solicitation of an offer to effect transactions in any securities or other financial instruments. 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 and regulations or subject Daewoo and its affiliates to registration or licensing requirements in any jurisdiction should receive or make any use hereof. Information and opinions contained herein are subject to change without notice and 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 Daewoo. 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. Daewoo and its affiliates may have had, or may be expecting to enter into, business relationships with the subject companies to provide investment
KDB Daewoo Securities Research 11
March 11, 2016 NCSOFT
banking, market-making or other financial services as are permitted under applicable laws and regulations. The price and value of the investments referred to in this report and the income from them may go down as well as up, and investors may realize losses on any investments. Past performance is not a guide to future performance. Future returns are not guaranteed, and a loss of original capital may occur.
Distribution United Kingdom: This report is being distributed by Daewoo Securities (Europe) 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: This report is distributed in the U.S. by Daewoo Securities (America) Inc., a member of FINRA/SIPC, and is only intended for major institutional investors as defined in Rule 15a-6(b)(4) under the U.S. Securities Exchange Act of 1934. All U.S. persons that receive this document by their acceptance thereof represent and warrant that they are a major institutional investor and have not received this report under any express or implied understanding that they will direct commission income to 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 Daewoo Securities (America) Inc., which accepts responsibility for the contents of this report in the U.S. 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 document has been approved for distribution in Hong Kong by Daewoo Securities (Hong Kong) Ltd., 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 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 Daewoo and its affiliates to any registration or licensing requirement within such jurisdiction.
KDB Daewoo Securities International Network
Daewoo Securities Co. Ltd. (Seoul) Daewoo Securities (Hong Kong) Ltd. Daewoo Securities (America) Inc. Head Office Two International Finance Centre 320 Park Avenue 34-3 Yeouido-dong, Yeongdeungpo-gu Suites 2005-2012 31st Floor
Seoul 150-716 8 Finance Street, Central New York, NY 10022 Korea Hong Kong, China United States Tel: 82-2-768-3026 Tel: 85-2-2845-6332 Tel: 1-212-407-1000 Daewoo Securities (Europe) Ltd. Daewoo Securities (Singapore) Pte. Ltd. Tokyo Branch 41st Floor, Tower 42 Six Battery Road #11-01 7th Floor, Yusen Building 25 Old Broad St. Singapore, 049909 2-3-2 Marunouchi, Chiyoda-ku London EC2N 1HQ Tokyo 100-0005 United Kingdom Japan Tel: 44-20-7982-8000 Tel: 65-6671-9845 Tel: 81-3- 3211-5511
Beijing Representative Office Shanghai Representative Office Ho Chi Minh Representative Office 2401A, 24th Floor, East Tower, Twin Towers Room 38T31, 38F SWFC Suite 2103, Saigon Trade Center B-12 Jianguomenwai Avenue 100 Century Avenue 37 Ton Duc Thang St,
Chaoyang District, Beijing 100022 Pudong New Area, Shanghai 200120 Dist. 1, Ho Chi Minh City, China China Vietnam Tel: 86-10-6567-9299 Tel: 86-21-5013-6392 Tel: 84-8-3910-6000 Daewoo Investment Advisory (Beijing) Co., Ltd. Daewoo Securities (Mongolia) LLC PT. Daewoo Securities Indonesia 2401B, 24th Floor, East Tower, Twin Towers #406, Blue Sky Tower, Peace Avenue 17 Equity Tower Building Lt.50 B-12 Jianguomenwai Avenue, 1 Khoroo, Sukhbaatar District Sudirman Central Business District Jl.
Chaoyang District, Beijing 100022 Ulaanbaatar 14240 Jendral Sudirman Kav. 52-53, Jakarta Selatan China Mongolia Indonesia 12190 Tel: 86-10-6567-9699 Tel: 976-7011-0807 Tel: 62-21-515-1140
KDB Daewoo Securities Research 12