NCsoft (036570 KS) Korea – Equity Research
Aion soared in popularity and sales charts after open-beta Internet
Buy Maintain previous estimates and target price 10 Sep 2009
The potentiality of AionÊs success in US and Europe was realized through the close-beta Bloomberg: 036570 KS testing in August and the open-beta testing in September, as 1) the number of unique hits Target Price (12M, W): 280,000 for Aion in MMORPG.com has soared since early this week, 2) AionÊs ranking in PC game Share Price (09/09/09, W): 153,000 sales charts in Amazon Europe (Germany, France) has risen to 1st or 2nd, 3) the Expected Return (%): 83.0 Steelbook Edition (same price as Standard Edition), which had ranked poorly, rose to 3rd Sector: Internet Software and Services in PC games sales chart at Amazon.com. Sector Rating: Overweight EPS Growth (09F, %): 594.6 We maintain our previous estimates for Aion box sales of 520,000 in 3Q and a total of Market EPS Growth (09F, %): 52.4 1mn by 1Q10. Our 2009 and 2010 forecast EPS, respectively. We maintain our Buy call P/E (X): 16.5 and 12-month target price of W280,000. Market P/E (09/09/09F, X): 14.7 NCsoft announced that they received preorders for 300,000 Aion boxes prior to open-beta Market Cap (Wbn): 3,318 testing in US and Europe on September 6. The breakdown of box sales by region was Shares Outstanding (mn): 22 55:45 (US:Europe), payment from customers was 30:70 (pre-tail:pre-sale) and distribution Avg Trading Volume (60D, '000): 593 platform was 70:30 (offline stores:online stores). US and Europe are different from Korea Avg Trading Value (60D, Wbn): 85 in that online game products are also distributed through offline stores. Margin Balance ('000 sh): 446 Dividend Yield (09F, %): .7 NCsoft West, the 100% owned subsidiary of NCsoft, distributes Aion in US and Europe. Free Float (%): 64.0 All Aion boxes include a coupon for a free 30-day subscription. Based on the selling price 52-Week Low/High: 24,400/193,000 of $49.99, NCsoft West reflects box sales as follows: net revenue per box of US$25 after Beta (12M, Daily Rate of Return): 0.9 subtracting US$10 for sales commission and US$15 for the 30-day subscription coupon. The 30-day subscription coupon is reflected according to the actual number of days Price Return Volatility (12M Daily, %,SD): 4.4 played by the gamers. As such, revenue per box is calculated as [boxes sold * $25 * Foreign Ownership (%): 17.3 ($15*(n/30)]. Major Shareholder(s): T. J. Kim et al (26.54%) According to the above calculation method, Aion is expected to generate sales of Mirae Asset Mgt. et al (13.01%) W19.5bn in 3Q in US and Europe, and W5.9bn in royalty income (30%) for NCsoft Treasury stock (9.41%) (parent). We assumed that Aion box sales will be 260,000 in 4Q09 and 210,000 in 1Q10 in US and Europe, and forecast royalty income for NCsoft to be W14.2bn in 4Q09 and Price Performance W16.9bn in 1Q10 from US and Europe. (%) 1M 6M 12M Absolute 11.3 99.2 232.2 Relative 9.3 49.2 221.7
FY Sales OP OP Margin NP EPS EBITDAFCF ROE P/E P/B EV/EBITDA Share price (Wbn) (Wbn) (%) (Wbn) (W) (Wbn) (Wbn) (%) (x) (x) (x) 420 KOSPI 12/07 223 47 21.1 45 2,205 56 19 10.4 22.2 2.3 13.3 320
12/08 240 46 19.0 27 1,334 57 10 6.4 39.4 2.6 15.6 220
12/09F 479 236 49.2 201 9,266 250 203 38.3 16.5 5.2 11.6 120
12/10F 574 305 53.2 290 13,379 321 230 37.7 11.4 3.7 8.3 20 12/11F 675 388 57.5 393 18,124 405 298 36.0 8.4 2.6 5.7 9/08 1/09 5/09 9/09 Source: Company data, Daewoo Securities Research estimates Chang Kwean Kim +822-768-4321 [email protected]
Jee-Hyun Moon +822-768-3615 [email protected] Please carefully read important notices in the last pages of this report. NCsoft
Aion ranked 1st or 2nd in Amazon Europe sites
In PC games sales charts in Europe, Aion ranked 2nd in Amazon UK, 1st in Amazon Canada, 1st in Amazon Germany and 2nd in Amazon France as of September 9. We especially note AionÊs rise to the No.1 rank in Germany, a hot spot in the online game market.
Figure 1. Aion ranked 2nd in Amazon UK Figure 2. Aion ranked 1st in Amazon Canada
Note: based on 3pm Sep. 9 in Seoul, Source: amazon.co.uk Note: based on 3pm Sep. 9 in Seoul, Source: amazon.co.ca
Figure 3. Aion ranked 1st in Amazon Germany Figure 4. Aion ranked 2nd in Amazon France
Note: based on 3pm Sep. 9 in Seoul, Source: amazon.de Note: based on 3pm Sep. 9 in Seoul, Source: amazon.fr
2 NCsoft
Surge in hits for Aion is positive
The number of unique hits for Aion soared after open-beta testing started on September 6. This is a good sign as the historical sales trend of offline stores, correlates highly with the popularity ranking of game portals such as MMORPG.com.
The number of weekly unique hits for Aion increased by about 30% compared to last week. And the number of monthly unique hits for Aion was 3 times that of WoW, which is ranked 2nd in the chart.
Figure 5. Weekly unique hits for Aion at MMORPG.com Figure 6. Monthly unique hits for Aion at MMORPG.com ('000) ('000) 200 weekly 800 monthly
Aug 17 150 CBT ended 600
100 400
Sep 6 OBT Started 50 200
0 0 Aug 14 Aug 21 Aug 28 Sep 4 Sep 11 Sep 18 Sep 25 Aug 14 Aug 21 Aug 28 Sep 4 Sep 11 Sep 18 Sep 25
Source: mmorpg.com, Daewoo Securities Research Source: mmorpg.com, Daewoo Securities Research
Figure 7. Semi-annual unique hits for Aion at MMORPG.com Figure 8. Annual unique hits for Aion at MMORPG.com ('000) ('000) 2,000 semi-annually 2,500 annually
1,750 2,250
1,500 2,000
1,250 1,750
1,000 1,500 Aug 14 Aug 21 Aug 28 Sep 4 Sep 11 Sep 18 Sep 25 Aug 14 Aug 21 Aug 28 Sep 4 Sep 11 Sep 18 Sep 25
Source: mmorpg.com, Daewoo Securities Research Source: mmorpg.com, Daewoo Securities Research
3 NCsoft
Table 1. Top 10 unique hits at MMORPG.com (unique hits) Rank In a week In a month In 6 months In a year 1 Aion 123,870 Aion 454,243 Aion 1,455,699 Warhammer Online 2,460,371 2 Champions Online 43,860 World of Warcraft 167,491 Warhammer Online 790,092 Aion 2,028,214 3 World of Warcraft 32,737 Champions Online 150,804 Star Wars: The Old Republic 691,316 Darkfall 1,612,469 4 Dungeons & Dragons Online 25,842 Warhammer Online 116,987 World of Warcraft 652,216 World of Warcraft 1,285,250 5 Alganon 25,547 Star Wars: The Old Republic 107,353 Age of Conan 617,117 Age of Conan 1,231,536 6 Warhammer Online 25,533 EVE Online 96,856 Darkfall 616,466 Lord of the Rings Online 1,193,449 7 Darkfall 25,265 Darkfall 92,204 Atlantica Online 530,265 Atlantica Online 1,120,472 8 Age of Conan 22,675 Atlantica Online 90,057 EVE Online 528,991 EVE Online 1,016,847 9 Star Wars: The Old Republic 22,315 Age of Conan 88,331 Lord of the Rings Online 525,081 Star Wars: The Old Republic 1,013,395 10 EVE Online 21,823 City of Heroes 85,021 The Chronicles of Spellborn 450,564 The Chronicles of Spellborn 916,816 Note: Based on September 8, 2009, the ranking is calculated by the popularity, number of unique hit, the characteristic of site is in Table 6. Source: mmorpg.com, Daewoo Securities Research
Table 2. Aion CollectorÊs Edition and Standard Edition Aion Collector's Edition Aion Standard Edition Price $59.99 ($69.99 as a box in offline-store) $49.99 Package includes a 30-day subscription (37 days if purchased online) Aion Collector's Edition Bonus Items: Sprint Ring, Stat-Boosting Hat, and XP Tailsman (available when game goes live): Contents Black Cloud Earring (gives an HP and MP boost) Package includes a 30-day subscription Special character title ("Pioneer of Aion") with stat boost Color dye to tint one in-game item Two character emotes (Disco and Samba Emotes) Source: Company Data, Daewoo Securities Research
Table 3. Top 10 weekly sales of PC games Steam Direct2Drive 1. Champions Online / Cryptic Studios 1. Champions Online / Cryptic 2. Aion Collector's Edition (pre-order) / NCsoft 2. Aion Collector's Edition (Pre-Order) / NCsoft 3. Street Fighter® IV / Valve 3. Fallen Earth (Pre-Order) 4. Left 4 Dead / Valve 4. Section 8 / TimeGate 5. Counter-Strike: Source / Valve 5. Civilization 4: The Complete Edition / Firaxis 6. THQ Collector Pack / THQ 6. Aion (Pre-Order) / NCsoft 7. Section 8 / Timegate 7. Rise of Flight /neoqb 8. Team Fortress 2 / Valve 8. Fallout 3 / Bethesda Softworks 9. Killing Floor / Tripwire Interactive 9. Dawn of Discovery 10. The Orange Box / Valve 10. F.E.A.R. 2 Project Origin / Warner Bros. Note: Based on the sales result in August 30~ September 5, the ranking is calculated by revenue size Source: Shacknews, Steam, Direct2Drive, Daewoo Securities Research
Figure 9. Aion weekly ranking
Jun 27 Jul 18 Aug 8 Aug 29 Sep 19 Oct 10 1 2 3 4 5 6 7 8 9 10 11 12 Steam (Collector's Edition, Download) 13 Direct2Drive (Collector's Edition, Download) 14 Amazon (Steelbook Edition, CD) 15 (rank)
Note: Steelbook Edition is same price with Standard Edition, the characteristic of each site is in Table 6. Source Steam, Direct2Drive, Shacknews, Amazon, Daewoo Securities Research
4 NCsoft
Table 4. Type of Aion sales in US and Europe # Type Details 1 Pre-order The term means both types 2 and 3 When customer only buys a beta key for $5, customer can decide to pay the remainder when Aion is commercialized. Only available offline. 2 Pre-sale Benefits: Early game access (48 hours before commercialization) Access to Aion server character pre-selection Access to all BETA event weekends When customer purchases full package: $49.99 (Standard), $59.99 (CollectorÊs Edition). 3 Pre-tail Only available online. Digital downloads available at Steam, Direct2Drive Source: Company data, Daewoo Securities Research
Table 5. Schedule of Aion service in US and Europe Date Details Sales of beta key May 14~ Sales of package June 17~ 3rd July 2~6 Asmodian levels 1~20 4th July 17~20 Elyos and Asmodian levels 1~25 Close beta testing 5th July 31~Aug. 3 Elyos and Asmodian levels 1~30 6th Aug. 14~17 Elyos and Asmodian levels 1~30 NCsoft will participate at game show in Germany Marketing in Europe Germany Aug. 19~23 Participants can experience Aion at the show Elyos and Asmodian levels 1~30 1st Sep. 6~13 Open beta testing Different from Korea, kind of close beta testing with bigger scale 2nd Mid Sep. Different from Korea, kind of close beta testing with bigger scale US Sep. 22 Pre-order provides 48 hour early access before commercialization Commercialization Europe Sep. 25 Pre-order provides 48 hour early access before commercialization Source: Company data, Daewoo Securities Research
Table 6. Information of each site that releases ranking of pc games Site name Ranking term Base Introduction
Daily, weekly, Popularity MMORPG.COM delivers news and is a community for the MMORPG genre. It covers 347 games, has MMORPG.com monthly, yearly (unique hits) 1,780 guilds (communities), 1,098,628 members, 2,905,520 posts.
Steam is a pioneer in an online gaming platform that provides the ability to distribute games and other content directly to more than 15 million gamers around the world. Steam opens up new channels of distribution and allows for non-traditional product offerings while increasing profit margins to content creators. Steam Weekly Revenue Valve, which operates Steam, is an entertainment software and technology company founded in 1996 and based in Bellevue, Washington. The companyÊs debut title, Half-Life®, has won over 50 Game of the Year Awards and was named "Best PC Game Ever" in November 1999, October 2001, and April 2005 issues of PC Gamer, the world's best-selling PC game magazine.
Direct2Drive, a digital download retail store, allows gamers to download PC games directly to their hard drives and offers game publishers a new channel to sell both their new and catalog PC game titles.
IGN Entertainment, which operates D2D, is a unit of Fox Interactive Media, Inc. and a leading Internet media and services provider focused on the videogame and entertainment enthusiast markets. IGN's Direct2Drive (D2D) Weekly Revenue properties collectively attract more than 31 million unique monthly users worldwide. Their network of videogame-related properties (IGN.com, GameSpy, FilePlanet, TeamXbox, 3D Gamers, Direct2Drive and others) is the web's number one videogame information destination and attracts one of the largest concentrated audiences of young males on the Internet. They also own and operate the popular movie- related website, Rotten Tomatoes, and one of the leading male lifestyle websites, AskMen.com. In addition, they provide technology for online game play in videogames.
Source: Company data, Daewoo Securities Research
5 Important Notices Equity Research for International Investors (ERII)
As of the publication date, Daewoo Securities Co., Ltd. issued equity-linked warrants with NCsoft as an underlying asset, and other than this, Daewoo Securities has no other special interests in the covered companies. As of the publication date, Daewoo Securities Co., Ltd. has acted as a liquidity provider for equity-linked warrants backed by shares of NCsoft as an underlying asset, and other than this, Daewoo Securities has no other special interests in the covered companies. This report is a translation excerpt of the Korean version publicly released on September 10, 2009. Analyst of the subject company or member of the analyst's household does not have any financial interest in the securities of the subject company and the nature of the financial interest (including without limitation, whether it consists of any option, right, warrant, future, long or short position). This report reflects the sole opinion of the analyst without any external influences by third parties.
Ratings Distribution Analyst Industry Ratings of Daewoo Securities Buy Relative Performance of +20% or greater Overweight Industry fundamentals are favorable or improving Trading Buy Relative Performance of +10% or greater, but with variability/volatility Neutral Industry fundamentals are steady without any material changes Hold Relative Performance of -10% and +10% Underweight Industry fundamentals are unfavorable or worsening Sell Relative Performance of -10% Note: 1) Our investment rating is a guide to the relative return of the stock versus the market over the next 12 months. 2) 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. Source: Daewoo Securities
Ratings and Target Price History (Share price (----), Target price (----), Not covered (■), Buy (▲), Trading Buy (■), Hold (●), Sell (◆))
(W) NCsof t[BUY/W280,000] 350,000
300,000
250,000
200,000
150,000
100,000
50,000
0 9/07 12/07 3/08 6/08 9/08 12/08 3/09 6/09 9/09
This report has been provided by the research division of Daewoo Securities Co., Ltd. The stock ratings, target prices, estimates and overall viewpoints are from the research division of Daewoo Securities. Investors can access Daewoo SecuritiesÊ research through Daewoo research direct (www.bestez.com), FirstCall Research, Reuters, FnGuide, WiseFn, FactSet and Bloomberg (DWIR). This document was prepared by Daewoo Securities Co., Ltd. („Daewoo‰). Information and opinions contained herein have been compiled from sources believed to be reliable and in good faith. The information has not been independently verified. Daewoo makes no guarantee, representation or warranty, express or implied, as to the fairness, accuracy or completeness of the information and opinions contained in this document. Daewoo accepts no responsibility or liability whatsoever for any loss arising from the use of this document or its contents or otherwise arising in connection therewith. Information and opinions contained herein are subject to change without notice. This document is for information purposes only. It is not and should not be construed as an offer or solicitation of an offer to purchase or sell any securities or other financial instruments. This document may not be reproduced, further distributed or published in whole or in part for any purpose. Daewoo and/or other affiliate companies, their directors, representatives, or employees may have long or short positions in any of the securities or other financial instruments mentioned in this document or of issuers described herein and may purchase and/or sale, or offer to purchase and/or sale, at any time, such securities or other financial instruments in the open market or otherwise, as either a principal or agent. This document is for distribution within the United Kingdom to persons authorized under the Financial Services Act 1986. Daewoo Securities is the sole provider of information contained in this document. DaewooÊs U.S. affiliate, Daewoo Securities (America) Inc., a member of FINRA/SIPC, is the sole distributor of this document within the U.S. This document may be distributed in the U.S. only to major U.S. institutional investors as defined in Rule 15a-6 of the U.S. Securities Exchange Act of 1934. Any U.S. recipient of this document wishing to effect any transactions in any securities discussed herein should contact and place orders with Daewoo Securities (America) Inc.
Daewoo Securities International Network Daewoo Securities Co., Ltd. Daewoo Securities (Europe) Ltd. Daewoo Securities (America) Inc. Tel : 82-2-768-3026 Fax : 82-2-768-3759 Tel : 44-20-7982-8000 Fax : 44-20-7982-8040 Tel : 1-212-407-1000 Fax : 1-212-407-1010 Contact: Jin Song [email protected] Contact: Sean Kang [email protected] Contact: Jean-Louis Lee [email protected] Howard Yoon [email protected]
Daewoo Securities (Hong Kong) Ltd. Tokyo Representative Office Beijing Representative Office Tel : 85-2-2845-6332 Fax : 85-2-2845-5374 Tel : 81-3-5642-6070 Fax : 81-3-5642-6228 Tel : 86-10-6567-9699 Fax : 86-10-6568-7899 Contact: Stacey Park [email protected] Contact: John Sejung Oh [email protected] Contact: Kang-Won Choe [email protected]