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TIGER KRX Game K-New Deal ETF to Increase 24% in 2020 and 17% in 2021

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[Korea] October 8, 2020 TIGER KRX Game K -New Deal ETF (364990 KS) Three positives in 2021 : N ext -generation consoles, new title releases, and contactless trend Mirae Asset Daewoo Co., Ltd. Chang-kwean Kim [email protected] HeeSeok Lim [email protected] 20 21 to mark an inflection point Gaming is at the heart of the entertainment industry ’s future for the gaming industry In 2021, the era of gaming anytime, anywhere will begin in earnest. Despite COVID-19 and the uncertain economic outlook for 2021, we expect the gaming industry to perform strongly, as: 1) the industry is inherently resilient to economic downturns; 2) gaming is rising in popularity among older adults; and 3) IT technologies are continuing to advance. In terms of investment strategy, we recommend focusing on new platforms and/or new title momentum. Key events in 2021 include: 1) the release of next-generation consoles; 2) the full- fledged deployment of cloud gaming; and 3) new title releases by major companies. New growth opportunities amid Key drivers of the domestic and global gaming markets: N ext -generation consoles, e- the pandemic sports, and mobile games We expect Korea’s console gaming and e-sports markets to expand at CAGRs of 12% and 9% through 2024, respectively. We estimate the global console gaming and e-sports markets will expand at CAGRs of 7% and 14% through 2024, respectively. In Nov. 2020, Sony and Microsoft are due to release next-generation game consoles for the first time in eight years. Tech giants (e.g., Microsoft, Google, Amazon, and Apple) are launching cloud gaming services in 2020. We expect competition for game content to intensify in 2021 as 5G networks take hold. Good entry point Opportune time to invest in TIGER KRX Game K -New Deal ETF; combined OP of its 10 constituents to increase 58% in 2020 and 38% in 2021 We forecast the combined revenue of the 10 companies held by the TIGER KRX Game K-New Deal ETF to increase 24% in 2020 and 17% in 2021. New title expectations are the biggest source of momentum for gaming stocks, with valuations typically soaring in the run-up to a new title release. Currently, the stocks held by the TIGER KRX Game K-New Deal ETF are trading at levels that do not reflect future title releases, making now a good entry point. TIGER KRX Game K-New Deal ETF constituents (%) 30 28.5 \ 24.7 25 22.1 20 15 10 6.1 4.6 4.5 4.2 5 2.2 2.0 1.2 0 Netmarble Pearl Abyss NCsoft Com2uS Webzen NHN DoubleU Neowiz WeMade Golfzon Games Quantiwise: Mirae Asset Daewoo Research 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. October 8, 2020 TIGER KRX Game K-New Deal ETF C O N T E N T S I. Investment summary 3 1. 2021 to mark an inflection point for the gaming industry 3 2. Gaming sector to perform strongly despite uncertainties 3 2. Investment strategy 7 II. 2021 gaming industry outlook 9 1. COVID-19 presents new growth opportunities 9 2. Launch of next-generation consoles 15 3. Cloud gaming to enter the mainstream 16 III. ETF investment points 18 1. Operating profit to soar 58% YoY in 2020, and 38% in 2021 18 2. High P/E should not be a deterrent 20 Mirae Asset Daewoo Research 2 October 8, 2020 TIGER KRX Game K-New Deal ETF I. Investment summary 1. 2021 to mark an inflection point for the gaming industry Smartphones have reshaped the mobile gaming market, allowing game developers to take back control from telecom companies. Similarly, we expect the proliferation of cloud computing to simultaneously revolutionize the online and console gaming markets. The gaming industry combines the characteristics of entertainment and technology. In the long term, IT platforms will take center stage; personal devices like smartphones, tablet PCs, and smart TVs will offer the same content and functionality, only with different display sizes. Just as 4G mobile technology fundamentally changed the video content market (e.g., YouTube and Netflix), we expect 5G to revolutionize mobile communication and content services, especially gaming. Microsoft’s game subscription service Xbox Game Pass has more than 15mn subscribers as of Sep. 2020, and the full catalog of Xbox games is now playable via PC and smartphone. Tech giants like Google and Amazon have also joined the race for cloud gaming services. In 2021, the era of gaming anytime, anywhere should begin in earnest. While such changes in the market environment should initially be centered on tech giants (e.g., Microsoft, Google, Amazon, and Sony), we believe game developers, as key content providers, stand to gain the upper hand in the long term (similar to the dynamics of the OTT market). 2. Gaming sector to perform strongly despite uncertainties 1) Gaming industry is inherently resilient to economic downturns Korea’s online gaming industry formed against the backdrop of the 1997-98 Asian financial crisis. The launch of StarCraft in 1997 led to the rapid penetration of PC cafés and the emergence of professional gaming as a new occupation. It was also around this time that gaming became a form of escapism for many people; Lineage 1, which began service in 1998, created a virtual universe separate from the offline world. (An extreme version of such escapism is depicted in the film Ready Player One , where characters spend their lives in a virtual simulation to escape the bleakness of the real world.) In the gaming industry, economic indicators are largely irrelevant to earnings. 1) The sector is in a growth phase, with evolving platforms serving as growth engines. 2) Gaming is one of the most affordable means of entertainment. Even for paid games, monthly ARPU can be as little as a couple of dollars (ranging up to W30,000). 3) In the gaming sector (like other entertainment sectors), the performance of individual titles matters more to earnings than the broader economy. Mirae Asset Daewoo Research 3 October 8, 2020 TIGER KRX Game K-New Deal ETF Figure 1. Korea: Combined EPS of major gaming companies & Figure 2. US: Combined EPS of major gaming companies & consumer confidence index consumer confidence index (W) (US$) EPS of Korean game companies (L) Korea CCI (R) EPS of US game companies (L) US CCI (R) 5,000 110 2.4 180 4,000 106 1.8 140 3,000 102 1.2 100 2,000 98 0.6 60 1,000 94 0 90 0.0 20 4/00 12/01 8/03 4/05 12/06 8/08 11/95 12/97 1/00 2/02 3/04 4/06 5/08 Source: Thomson Reuters, Mirae Asset Daewoo Research Source: Thomson Reuters, Mirae Asset Daewoo Research Figure 3. China: Combined EPS of major gaming companies & Figure 4. Japan: Combined EPS of major gaming companies & consumer confidence index consumer confidence index (US$) (JPY) EPS of Chinese game companies (L) China CCI (R) EPS of Japanese game companies (L) Japan CCI (R) 5 98 2,000 60 4 97 1,500 50 3 96 1,000 40 2 95 500 30 1 94 0 93 0 20 12/04 8/05 4/06 12/06 8/07 4/08 11/95 5/98 11/00 5/03 11/05 5/08 Source: Thomson Reuters, Mirae Asset Daewoo Research Source: Thomson Reuters, Mirae Asset Daewoo Research Mirae Asset Daewoo Research 4 October 8, 2020 TIGER KRX Game K-New Deal ETF 2) Gaming is rising in popularity among older adults Figure 5. Lineage ’s monthly unique users by age group Figure 6. Lineage M ’s monthly unique users by age group Other 2% 50+ 0-29 4% 4% 40-49 33% 30-39 65% 30-49 92% Source: Nielsen KoreanClick, Mirae Asset Daewoo Research Source: Nielsen KoreanClick, Mirae Asset Daewoo Research Figure 7. Lineage 2M ’ s monthly unique users by age group Figure 8. Anipang 2 ’s s monthly unique users by age group 0-29 0-29 0% 0% 50+ 24% 30-49 30% 50+ 30-49 70% 76% Source: Nielsen KoreanClick, Mirae Asset Daewoo Research Source: Nielsen KoreanClick, Mirae Asset Daewoo Research Figure 10. Hangame Matgo ’s monthly unique users by age Figure 9. Pmang Poker ’s monthly unique users by age group group 0-29 13% 0-29 27% 50+ 41% 30-49 50+ 26% 61% 30-49 32% Source: Nielsen KoreanClick, Mirae Asset Daewoo Research Source: Nielsen KoreanClick, Mirae Asset Daewoo Research Mirae Asset Daewoo Research 5 October 8, 2020 TIGER KRX Game K-New Deal ETF 3) IT technologies are continuing to advance One of the biggest changes in IT technologies expected in 2021 is the rapid deployment of 5G networks. While 4G technologies led to the rise of OTT platforms such as YouTube and Netflix, 5G technologies should drive: 1) the take-off of cloud (streaming) gaming; and 2) the development of virtual reality (VR) and augmented reality (AR) gaming. The AR/VR gaming markets are still in the very early stages of development. As such, there are a lot of uncertainties surrounding the pace of technology development, the pricing of hardware, the quality of game content, and consumer perceptions. Digi-Capital projects AR/VR gaming revenue to reach US$1bn by 2022, with AR games expected to outgrow VR games in terms of revenue. Although revenues are small, AR/VR gaming has strong potential to create new markets, opening up opportunities for start-ups and small/medium-sized game developers.
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