NCsoft (036570)
New Title Launches to Resume with Trickster M
Danny Lee Yonghyun Choi Internet & Games / Media Research Associate May 10, 2021 +822-6114-2960 [email protected] +822-2-6114-2915 [email protected]
Maintain BUY; Revise down TP to We maintain BUY and revise down our TP by 4.5% to KRW1,100,000 for NCsoft. We have KRW1,100,000 revised down 2021E revenue and OP by 8.8% and 15.8%, respectively, to reflect sluggish results for mobile games in 1Q21, as well as delays in the rollouts of key game titles (e.g., Blade & Soul 2, Aion 2). We have also revised our valuation method from P/E to DCF model in order to better reflect the company’s long-term growth potential. Our revised TP implies 12m fwd P/E of 24.1x.
Earnings shock attributable to NCsoft reported 1Q21 revenue of KRW512.5bn (-8.7% QoQ, -29.9% YoY) and OP of sluggish mobile game revenue and KRW56.7bn (-63.8% QoQ, -76.5% YoY), with OP missing the market consensus increase in labor expenses (KRW125.8bn) by 54.9%. We attribute the QoQ decline in revenue to lower revenues for Lineage M and Lineage 2M (-18.4% and -8.7% QoQ, respectively). The shock to OP came on the back of: (1) an increase in labor expenses upon wage hikes and one-off incentive payments (+25.8% QoQ to KRW232.5bn); and (2) higher marketing expenses due to new game rollouts (+22.6% QoQ to KRW55.0bn).
Delays in new title launches New game rollouts will begin, starting with the release of Trickster M on May 20, but disappointing, but revenue forecast schedules for other key titles have been pushed back. We believe it highly likely that the for Blade & Soul 2 revised up release of Blade & Soul 2 will be pushed back from June to 3Q21, and both Project TL (The Lineage) and Aion 2 from 4Q21 to 2022. However, we expect Blade & Soul 2 to generate higher revenue than previously expected, given that pre-registrations indicate a wider range of age groups among users, as well as a higher number of characters compared to Lineage 2M during the same time period. As such, we have revised up our
Buy Maintain Trading Data Risk & Total Return (annualized over three years) Free float 81.9% Target Price (Lowered) KRW1,100,000 Avg. T/O val. (3m, KRWbn) 92.2 Return 1 2 3 4 High5
Foreign ownership 52.1% Risk Dividend yield* 1.3% 1 FALSE FALSE FALSE FALSE TRUE Total return 26.6% Major shareholders Taek-Jin Kim and 8 others 12.0% 2 FALSE FALSE FALSE FALSE FALSE Current price (May 10) KRW878,000 3 FALSE FALSE FALSE FALSE FALSE Consensus target price KRW1,207,647 NPS 10.5%
4High FALSE FALSE FALSE FALSE FALSE Market capitalization USD17.3bn Stock Price Performance 5 FALSE FALSE FALSE FALSE FALSE * 12-month forward (%) 1M 3M 6M 12M
Absolute -5.1 -14.5 10.2 29.3
Relative -8.5 -18.4 -16.8 -22.6
Earnings Forecast & Valuation Stock Price & Relative Performance
Fiscal year-end 2020A 2021E 2022E 2023E Relative performance (LHS) Revenue (KRWbn) 2,416 2,811 3,301 3,631 Stock price (RHS) % KRW OP (KRWbn) 825 992 1,287 1,014 40 1,160,000 NP to control. int. (KRWbn) 587 799 1,004 757 30 EPS (KRW) 26,756 36,376 45,709 34,474 20 EPS growth (%) 63.9 36.0 25.7 -24.6 10 880,000 P/E (x) 34.8 24.1 19.2 25.5 0 EV/EBITDA (x) 21.0 16.1 12.0 14.7 -10 P/B (x) 6.5 5.1 4.3 3.9 -20 ROE (%) 20.8 23.1 24.2 16.0 -30 600,000 Div. yield (%) 0.9 1.3 1.8 2.3 May '20 Aug '20 Nov '20 Feb '21 May '21
Source(s): Company data, KB Securities
daily average revenue forecast (for the initial phase of launch) for the title from KRW2.5bn to KRW3.0bn.
Share price to gain ground ahead of While share price performance has been sluggish upon concerns over 1Q21 results, Blade & Soul 2 rollout delays in new game rollouts, as well as the resumption of short selling, we believe it should gain ground ahead of new title releases (Trickster M, Blade & Soul 2). We also expect OP to normalize in 2Q21 (KRW167.2bn, +194.7% QoQ).
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Investment Opinion & Risks
Base-case scenario: Catalysts
1) Lineage 2M 2021E average daily revenue at
Bull-case Scenario KRW1,320,000 (28.9x 12m fwd P/E) KRW1.8bn 2) Trickster M, Blade & Soul 2 released in 2Q21,
3Q21
Base-case scenario (target price) KRW1,100,000 (24.1x 12m fwd P/E) Bull-case scenario: Upside risks
1) Lineage 2M 2021E average daily revenue at KRW2.3bn Bear-case Scenario KRW880,000 (19.3x 12m fwd P/E) 2) Trickster M, Blade & Soul 2 released in 2Q21, 3Q21 and become popular
Current price KRW878,000 Bear-case scenario: Downside risks 1) Lineage 2M 2021E average daily revenue at KRW1.5bn
2) Trickster M, Blade & Soul 2 rollouts delayed
Revised Earnings Estimates Valuation & Target Price Calculation (KRWbn, %) Previous Revised Change 2021E 2022E 2021E 2022E 2021E 2022E 1) Valuation method: Revenue 3,080.5 3,796.6 2,810.8 3,300.6 -8.8 -13.1 DCF model OP 1,177.8 1,599.3 991.9 1,286.8 -15.8 -19.5 NP (to control. int.) 903.4 1,217.0 798.6 1,003.5 -11.6 -17.5 2) Target price calculation: Source(s): KB Securities estimates Target market cap. KRW24.1tn
KB Estimates vs. Consensus 3) Target price range: (KRWbn, %) KB Estimates Consensus Difference KRW878,000 – KRW1,320,000 2021E 2022E 2021E 2022E 2021E 2022E 4) ) Valuation at target price: Revenue 2,810.8 3,300.6 2,985.7 3,799.5 -5.9 -13.1 24.1x 12m fwd P/E OP 991.9 1,286.8 1,102.3 1,561.1 -10.0 -17.6 NP (to control. int.) 798.6 1,003.5 830.1 1,160.6 -3.8 -13.5
Source(s): Quantiwise, KB Securities estimates
Revenue Composition (2021E) Earnings Sensitivity Analysis (%) EPS Change 2021E 2022E +1% in FX rate +0.1 +0.1 7% +1pp in interest rate +1.0 +1.0
Games
Royalties
93%
Source(s): KB Securities estimates
Peer Group Comparison
(KRWbn, x, %) Market Cap. 12m fwd P/E 5y EPS CAGR 12m fwd P/B 12m fwd EV/EBITDA 5y EBITDA CAGR
NCsoft 19,275.6 20.2 27.59 4.6 10.9 26.69 Activision Blizzard 82,177.9 24.1 19.61 4.2 15.0 12.42 NetEase 82,236.7 24.8 12.03 4.5 18.2 19.28 Nexon 31,581.2 23.5 0.65 3.6 14.0 9.76
Source(s): Bloomberg consensus, KB Securities
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Table 1. 1Q21 Earnings Results
(KRWbn, %, pp) 1Q21P 4Q20 QoQ 1Q20 YoY Previous Diff. Cons. Diff.
Revenue 512.5 561.3 (8.7) 731.1 (29.9) 536.6 (4.5) 545.9 (6.1)
OP 56.7 156.7 (63.8) 241.4 (76.5) 100.5 (43.6) 125.8 (54.9)
OPM 11.1 27.9 (16.8) 33.0 (22.0) 18.7 (7.7) 23.0 (12.0)
NP (to control. int.) 80.9 80.6 0.4 195.5 (58.6) 83.7 (3.4) 90.6 (10.7)
NPM (to control. int.) 15.8 14.4 1.4 26.7 (11.0) 15.6 0.2 16.6 (0.8)
Source(s):Company data, Quantiwise, KB Securities estimates
Table 2. Earnings Forecast (consolidated)
(KRWbn) 1Q20 2Q20 3Q20 4Q20 1Q21P 2Q21E 3Q21E 4Q21E 2019 2020 2021E 2022E
Revenue 731.1 538.6 585.2 561.3 512.5 570.0 849.7 878.5 1,701.2 2,416.2 2,810.8 3,300.6
(% QoQ) 37.0 (26.3) 8.7 (4.1) (8.7) 11.2 49.1 3.4
(% YoY) 103.8 31.1 47.1 5.2 (29.9) 5.8 45.2 56.5 (0.8) 42.0 16.3 17.4
Games 678.3 476.3 526.3 517.3 467.0 525.7 806.2 836.1 1,503.7 2,198.1 2,634.9 3,141.0
Lineage 1 44.8 34.3 49.9 46.8 48.9 44.8 48.0 45.1 174.1 175.7 186.9 180.2
Lineage 2 26.4 25.8 26.3 26.0 26.2 25.1 25.7 25.3 93.6 104.5 102.3 99.8
Aion 10.1 8.194 8.5 18.8 23.4 21.6 20.4 22.8 46.0 45.6 88.2 84.9
Blade & Soul 19.6 19.8 17.2 15.6 14.1 17.2 16.3 15.4 83.9 72.2 62.9 61.9
Guild Wars 2 12.5 15.6 18.8 14.2 16.3 16.2 16.0 15.9 58.7 61.2 64.5 62.2
Lineage M 212.0 159.9 245.2 211.7 172.6 175.9 220.7 218.0 834.7 828.7 787.2 763.6
Lineage 2M 341.1 197.3 144.5 166.7 152.2 182.7 157.2 162.1 143.9 849.6 654.3 630.7
Other 11.6 15.5 16.0 17.5 13.2 42.2 301.9 331.4 68.9 60.6 688.7 1,257.8
Royalties 52.8 62.3 58.8 44.1 45.5 44.4 43.5 42.5 197.5 218.0 175.8 159.6
OPEX 489.7 329.6 367.5 404.6 455.8 402.9 459.7 500.5 1,222.2 1,591.4 1,818.9 2,013.8
(% QoQ) 24.7 (32.7) 11.5 10.1 12.6 (11.6) 14.1 8.9 (% YoY) 75.4 17.1 36.7 3.0 (6.9) 22.2 25.1 23.7 11.1 30.2 14.3 10.7 Labor 211.8 162.3 159.1 184.9 232.5 188.6 184.9 203.1 555.1 718.2 809.1 866.0 Variable 223.5 138.7 162.2 158.2 147.3 148.2 220.9 228.4 507.9 682.6 744.9 858.2 Marketing 39.6 12.9 29.7 44.8 55.0 45.1 32.7 47.1 107.3 127.0 179.8 197.8 D&A 14.8 15.6 16.5 16.7 20.9 20.9 21.2 22.0 52.0 63.7 85.0 91.8 OP 241.4 209.0 217.7 156.7 56.7 167.2 390.0 378.0 479.0 824.8 991.9 1,286.8 (% QoQ) 71.0 (13.4) 4.2 (28.0) (63.8) 194.7 133.3 (3.1) - - - - (% YoY) 203.6 61.5 68.9 11.0 (76.5) (20.0) 79.2 141.2 (22.1) 72.2 20.3 29.7 OPM (%) 33.0 38.8 37.2 27.9 11.1 29.3 45.9 43.0 28.2 34.1 35.3 39.0 NP 195.5 158.2 153.2 80.6 80.9 135.6 299.3 282.8 358.2 587.4 798.6 1,003.5 (to control. int.) (% QoQ) 260.5 (19.1) (3.2) (47.4) 0.4 67.6 120.8 (5.5) - - - - (% YoY) 163.5 35.9 35.1 48.6 (58.6) (14.3) 95.4 251.0 (14.4) 64.0 36.0 25.7 NPM(%) 26.7 29.4 26.2 14.4 15.8 23.8 35.2 32.2 21.1 24.3 28.4 30.4
Source(s): Company data, KB Securities estimates
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Table 3. Earnings Estimates Revisions
2021E 2022E (KRWbn, %, pp) Revised Previous Change Cons. Diff. Revised Previous Change Cons. Diff.
Revenue 2,810.8 3,080.5 (8.8) 2,985.7 (5.9) 3,300.6 3,796.6 (13.1) 3,799.5 (13.1) OP 991.9 1,177.8 (15.8) 1,102.3 (10.0) 1,286.8 1,599.3 (19.5) 1,561.1 (17.6) OP margin 35.3 38.2 (2.9) 36.9 (1.6) 39.0 42.1 (3.1) 41.1 (2.1) NP (to control. int.) 798.6 903.4 (11.6) 830.1 (3.8) 1,003.5 1,217.0 (17.5) 1,160.6 (13.5) NP margin (to control. int.) 28.4 29.3 (0.9) 27.8 0.6 30.4 32.1 (1.7) 30.5 (0.1)
Source(s): Quantiwise, KB Securities estimates
Note: Previous estimates based on data as of Apr 13, 2021
TTable 4. TP Calculation: DCF Model (KRWbn, %, ’000 shares, KRW) 2021E 2022E 2023E 2024E 2025E 2026E 2027E 2028E 2029E 2030E 2031E Cash flow projection Adj. FCF 641.2 933.3 631.1 822.4 810.3 978.0 1,077.1 1,180.5 1,268.6 1,347.6 FCFF 478.2 933.3 631.1 822.4 810.3 978.0 1,077.1 1,180.5 1,268.6 1,347.6 1,400.6 NOPLAT 734.4 951.2 750.1 825.1 907.6 1,006.5 1,107.2 1,212.3 1,302.0 1,380.2 1,435.4 (+) Depreciation & amortization 71.5 75.7 79.8 84.0 88.2 88.2 89.9 91.7 93.8 98.5 100.5 (+/-) Changes in working capital -244 -5 -106 11 -83.6 -12.8 -14 -15 -17 -19 -21 (-) Capital expenditure -80.0 -84.0 -88.0 -92.0 -96.0 -97.9 -99.9 -101.9 -103.9 -106.0 -108.1 (-) Others -4.0 -4.4 -4.8 -5.3 -5.9 -6.0 -6.1 -6.2 -6.3 -6.5 -6.6 PV of cash flow WACC 7.08 Discount 1.00 0.93 0.87 0.81 0.76 0.71 0.66 0.62 0.58 0.54 PV of cash flow 641.2 871.6 550.4 669.9 616.3 694.7 714.5 731.4 734.0 728.1 Terminal growth 2.1 Average 30y KTB yield Terminal value 27,631.6 2026E FCFF / (WACC – TGR) PV of terminal value 14,929.9 7.08% WACC (0.67% risk-free rate; 7.37% market risk premium) Valuation EV 21,881.9 (-) Net debt (2,202.0) Net cash (+) Investments in associates 67.3 End-4Q20 (-) Non-controlling interest (7.1) Fair EV 24,158 No. of shares 21,954 1,100,00 Target price 0 Current price 878,000 May 10, 2021 Upside 25.3
Source(s): KB Securities estimates
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Table 5. TP Sensitivity to WACC & TGR (KRW) Terminal Growth Rate (%)
1.3 1.5 1.7 1.9 2.1 2.3 2.5 2.7 2.9 6.48 1,110,949 1,139,757 1,170,975 1,204,921 1,241,967 1,282,558 1,327,230 1,376,630 1,431,551 6.68 1,071,782 1,098,050 1,126,428 1,157,182 1,190,621 1,227,115 1,267,102 1,311,108 1,359,772 6.88 1,035,458 1,059,480 1,085,357 1,113,314 1,143,610 1,176,552 1,212,503 1,251,895 1,295,247 WACC (%) 7.08 1,001,682 1,023,709 1,047,375 1,072,868 1,100,409 1,130,255 1,162,708 1,198,126 1,236,933 7.28 970,197 990,446 1,012,147 1,035,462 1,060,577 1,087,710 1,117,114 1,149,087 1,183,979 7.48 940,780 959,439 979,388 1,000,769 1,023,739 1,048,483 1,075,214 1,104,183 1,135,683 7.68 913,237 930,467 948,850 968,506 989,570 1,012,201 1,036,580 1,062,917 1,091,459 Source(s): Quantiwise, KB Securities estimates
Table 6. WACC Revision
Previous Revised (KRWbn, %) (Apr 13) (May 10) Notes COE (A) = a + b x c 7.08 7.08 Risk-free rate (a) 0.67 0.67 Avg. 1y MSB yield (last 3 months) Adj. beta (b) 0.87 0.87 Adj. beta
Risk premium (c = d - e) 7.37 7.37 Market (d) 10.97 10.97 2001-20 annual avg. WMI500 total return Risk-free rate (e) 3.61 3.61 2001-20 avg. 1y MSB yield COD (B) 1.45 1.45 YTM of 1y KRW-based bonds
Debt -2,202 Net debt Weight of equity value (f) 100.00 100.00 As of 2021
Weight of debt (g) 0.00 0.00 WACC (C) = (A x f) + (B x g) 7.08 7.08
Source(s): KB Securities estimates
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Table 7. Key Assumptions for Mobile Games
(KRWbn, day) 1Q20 2Q20 3Q20 4Q20 1Q21E 2Q21E 3Q21E 4Q21E 2019 2020 2021E 2022E
Lineage M 212.0 159.9 245.2 211.7 172.6 175.9 220.7 218.0 834.7 828.7 787.2 763.6 Avg. daily revenue 2.3 1.8 2.7 2.3 1.9 1.9 2.4 2.4 2.3 2.3 2.2 2.1 No. of days serviced 91 91 92 92 90 91 92 92 365 366 365 365
Lineage 2M 341.1 197.3 144.5 166.7 152.2 182.7 157.2 162.1 143.9 849.6 654.3 630.7 Avg. daily revenue 3.7 2.1 1.6 1.8 1.7 2.0 1.7 1.8 4.1 2.3 1.8 1.7 No. of days serviced 91 92 92 91 90 92 92 91 35 366 365 365
Trickster M 28.7 47.9 33.1 109.7 121.9 Avg. daily revenue 0.7 0.5 0.4 0.5 0.3 No. of days serviced 41 92 91 224 365 Blade & Soul 2 240.0 283.9 523.9 475.6 Avg. daily revenue 3.0 3.1 3.1 1.3 No. of days serviced 80 91 171 365 Aion 2 350.3 Avg. daily revenue 1.6 No. of days serviced 213 Project TL 117.8 Avg. daily revenue 0.6 No. of days serviced 182
Source(s): Company data, KB Securities estimates Note: Revenue data includes overseas revenue
Table 8. NCsoft Game Lineup
Game Release Date Genre Country/Region Platform Developer/Publisher Notes
Lineage 2: Blood 07/28/16 MMORPG China Mobile Snail Games/NCsoft Pledge Collective Lineage RK 12/08/16 Global Mobile NCsoft/NCsoft - RPG
Blade & Soul 08/08/17 Web game China Mobile Tencent/Tencent
Final Blade 02/14/17 RPG Korea Mobile Sky People/NCsoft -
Professional 03/30/17 Sports Korea Mobile Ntreev/NCsoft - Baseball H2 Lineage M 06/21/17 MMORPG Korea Mobile NCsoft/NCsoft -
Lineage M 12/11/17 MMORPG Taiwan Mobile NCsoft/Gamania -
Arami 08/17/17 Puzzle Global Mobile NCsoft/NCsoft - Puzzventure Pangya M 02/08/18 Sports Southeast Asia Mobile NCsoft/NCsoft -
AION: Legions of North America 01/24/19 RPG Mobile NCsoft/NCsoft - War / Europe Lineage M 05/29/19 MMORPG Japan Mobile NCsoft/NCsoft -
Lineage 2M 12/27/19 MMORPG Korea Mobile NCsoft/NCsoft -
FUSER 11/10/20 Rhythm U.S./Europe PC/Console Harmonix/NCsoft -
Lineage 2M 03/24/21 MMORPG Taiwan, Japan Mobile NCsoft/NCsoft
3mn pre- Trickster M 2Q21 MMORPG Korea Mobile NCsoft/NCsoft registrations 4mn pre- Blade & Soul 2 3Q21 MMORPG Korea Mobile NCsoft/NCsoft registrations Aion 2 2022 MMORPG Korea Mobile NCsoft/NCsoft
Project TL 2022 MMORPG Korea PC/Console NCsoft/NCsoft 2020 CBT
Blade & Soul S TBA MMORPG Korea Mobile NCsoft/NCsoft
Source(s): Company data, KB Securities estimates
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Fig 1. 12m Fwd OP Consensus & Share Price Trend
12m fwd OP consensus (R) Adj. share price (L) (KRW) (KRWbn) 1,200,000 1,600,000
1,400,000 1,000,000 1,200,000 800,000 1,000,000
600,000 800,000
600,000 400,000 400,000 200,000 200,000
0 0 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21
(x) 12m fwd P/E 30 Lineage2M Lineage2 Revolution Korea release 25 Korea release (2019.11) (2016.12) 20
15 Lineage2M Japna/Taiwan 10 Lineage2 LineageM Blade&Soul Blade&Soul Korea release Xion release China Korea release Lineage2 Korea release LineageM (2021.03) 5 (2003.10) Korea release (2017.06) Global release (2012.06) release Taiwan release (2008.11) (2004.11~) (2013.11) (2017.12) 0 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21
Source(s): Quantiwise, KB Securities
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Fig 2. Revenue Estimate Revisions for Lineage 2M
Revenue (Revised) (L) (KRWbn) Average daily revenue (Revised) (R) (KRWbn) 400 Average daily revenue (Previous) (R) 5.0 4.1 350 3.7 4.0 300 3.1 250 2.4 2.3 3.0 2.1 200 1.8 1.7 150 2.0 2.0 100 1.8 1.7 1.7 1.0 50 143.9 341.1 197.3 144.5 166.7 152.2 182.7 157.2 162.1 0 0.0 4Q19 1Q20 2Q20 3Q20 4Q20 1Q21P 2Q22E 3Q21E 4Q21E
Source(s): Company data, KB Securities estimates
Note: Based on domestic and overseas revenue combined
Fig 3. Revenue Estimate Revisions for Blade & Soul 2
Revenue (Revised) (L) Average daily revenue (Revised) (R) (KRWbn) (KRWbn) Average daily revenue (Previous) (R) 300 5.0
250 3.7 4.0 3.0 200 3.0 150 2.1 2.8 1.5 2.5 1.4 1.4 2.0 100 2.3 2.3
1.7 1.4 1.5 1.0 50 - 240.0 283.9 185.8 131.7 142.3 128.7 0 0.0 2Q20E 3Q20E 4Q21E 1Q22E 2Q22E 3Q22E 4Q22E
Source(s): Company data, KB Securities estimates
Fig 4. Change in Revenue After Release: Lineage M vs. Lineage 2M
Lineage M average daily revenue (L) Lineage 2M average daily revenue (L) (KRWbn) (%) Lineage M ADR diff. vs. Q1 (R) Lineage 2M ADR diff. vs Q1 (R) 10 8.5 100 3Q18 vs. 1Q21 8 5.9 80 6 4.1 60 3.7 3.5 2.9 4 2.1 2.3 2.3 40 1.6 1.8 1.6 2 20 0 0 -9 -2 0 -20 -48 -55 -4 -62 -61 -40 -30 -6 -60 -59 -8 -66 -73 -73 -80 Q1 Q2 Q3 Q4 Q5 Q6
Source(s): Company data, KB Securities estimates
Note: Based on domestic revenue
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Fig 5. Lineage 2M’s Japan iOS Revenue Ranking Fig 6. Lineage 2M’s Japan Google Play Revenue Ranking
3/24/21 3/31/21 4/07/21 4/14/21 4/21/21 4/28/21 5/05/21 3/27/21 4/03/21 4/10/21 4/17/21 4/24/21 5/01/21 5/08/21 0 0
20 10
40 20
60 30
80 40
100 50
(Ranking) 120 60 (Ranking)
Source(s): Mobileindex, KB Securities Source(s): Mobileindex, KB Securities
Fig 7. Lineage 2M’s Taiwan iOS Revenue Ranking Fig 8. Lineage 2M’s Taiwan Google Play Revenue Ranking
3/24/21 3/31/21 4/07/21 4/14/21 4/21/21 4/28/21 5/05/21 3/26/21 4/02/21 4/09/21 4/16/21 4/23/21 4/30/21 5/07/21 0 0 1 1 2 2 3 4 3 5 4 6 5 7 8 6 9 7 10 8 11 12 9 13 10 (Ranking) (Ranking)
Source(s): Mobileindex, KB Securities Source(s): Mobileindex, KB Securities
Fig 9. Lineage M’s Taiwan iOS Revenue Ranking Fig 10. Lineage M’s Taiwan Google Play Revenue Ranking
1/20 4/20 7/20 10/20 1/21 4/21 1/20 4/20 7/20 10/20 1/21 4/21 0 0 5 10 1 15 20 2 25 30 3 35 40 4 45 (Ranking) 50 (Ranking) 5
Source(s): Mobileindex, KB Securities Source(s): Mobileindex, KB Securities
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Income Statement Statement of Financial Position (KRWbn) 2019A 2020A 2021E 2022E 2023E (KRWbn) 2019A 2020A 2021E 2022E 2023E (Reporting standard) (IFRS-C) (IFRS-C) (IFRS-C) (IFRS-C) (IFRS-C) (Reporting standard) (IFRS-C) (IFRS-C) (IFRS-C) (IFRS-C) (IFRS-C)
Revenue 1,701 2,416 2,811 3,301 3,631 Total assets 3,346 4,081 4,703 5,466 5,890
Cost of revenue 0 0 0 0 0 Current assets 2,088 2,444 3,042 3,672 4,083 Gross profit 1,701 2,416 2,811 3,301 3,631 Cash and cash equivalents 303 157 580 1,284 1,589 SG&A expenses 1,222 1,591 1,819 2,014 2,617 Current financial assets 1,469 1,962 1,962 1,962 1,962
Operating profit 479 825 992 1,287 1,014 Trade receivables 254 243 416 333 439 EBITDA 531 891 1,063 1,363 1,093 Inventory 2 1 1 1 1 Non-operating accounts 17 -22 75 57 0 Other current assets 59 81 83 92 92
Interest income 34 33 31 31 0 Non-current assets 1,259 1,637 1,661 1,794 1,807 Interest expenses 8 9 9 9 0 Investment assets 838 1,186 1,198 1,318 1,318 Profit on equity method -19 -6 2 2 0 Property, plant and equipment 350 368 378 388 398
Net other non-operating income 11 -40 51 33 0 Intangible assets 50 50 52 55 59 Profit before tax 496 803 1,067 1,344 1,014 Other non-current assets 21 33 33 33 33 Income tax expense 137 217 276 349 264 Total liabilities 834 937 944 951 951
Net profit 359 587 791 995 750 Current liabilities 450 509 514 519 519 NP attributable to controlling interests 358 587 799 1,004 757 Trade payables 5 0 5 10 10 Adj. net profit 358 587 799 1,004 757 Short-term financial liabilities 43 42 42 42 42
Other current liabilities 402 467 467 467 467 Operating Statistics & Ratios Non-current liabilities 384 427 429 431 431 (%) 2019A 2020A 2021E 2022E 2023E Non-current financial liabilities 315 295 297 300 300
Revenue growth -0.8 42.0 16.3 17.4 10.0 Other non-current liabilities 69 132 132 132 132 OP growth -22.1 72.2 20.3 29.7 -21.2 Total equity 2,512 3,145 3,760 4,515 4,939
EBITDA growth -17.3 67.6 19.4 28.1 -19.8 Issued capital 11 11 11 11 11 NP growth of parent -14.4 64.0 36.0 25.7 -24.6 Share premium 436 433 433 433 433 GP margin 100.0 100.0 100.0 100.0 100.0 Other equity interest -438 -438 -438 -438 -438
OP margin 28.2 34.1 35.3 39.0 27.9 Accumulated other comprehensive income 108 278 278 278 278 EBITDA margin 31.2 36.9 37.8 41.3 30.1 Retained earnings 2,382 2,857 3,479 4,243 4,674 EBT margin 29.2 33.3 38.0 40.7 27.9 Controlling interests 2,499 3,142 3,764 4,528 4,959
NP margin of parent 21.1 24.3 28.4 30.4 20.9 Non-controlling interests 13 3 -4 -13 -20
Statement of Cash Flows Key Ratios (KRWbn) 2019A 2020A 2021E 2022E 2023E (x, %, KRW) 2019A 2020A 2021E 2022E 2023E
Cash flow from operating activities 392 708 617 1,063 724 Multiples Net profit 359 587 791 995 750 P/E 33.1 34.8 22.8 18.2 24.1
Depreciation & amortization 52 66 72 76 80 P/B 4.8 6.5 4.8 4.0 3.7
Other non-cash adjustments 148 251 274 347 264 P/S 7.0 8.5 6.5 5.5 5.0 Investments in working capital -71 -46 -244 -5 -106 EV/EBITDA 19.7 21.0 15.1 11.2 13.7
Decrease(Increase) in receivables -106 11 -173 83 -106 EV/EBIT 21.9 22.6 16.1 11.9 14.8 Decrease(Increase) in inventory -1 0 -1 0 0 Dividend yield, ordinary (%) 1.0 0.9 1.4 1.9 2.4 Increase(Decrease) in payables 3 3 5 5 0 EPS 16,320 26,756 36,376 45,709 34,474
Investments in other working capital 34 -60 -75 -93 0 BVPS 113,836 143,098 171,449 206,247 225,887 Other operating cash flow -97 -150 -276 -349 -264 SPS 77,514 110,057 128,030 150,342 165,376 Cash flow from investing activities -234 -696 -96 -208 -93 DPS (annual, ordinary) 5,220 8,550 11,624 15,804 19,859
Capital expenditure -50 -62 -80 -84 -88 Cash dividends payout ratio (%) 30.0 30.0 30.0 32.5 54.1 Investments in intangibles -3 0 -4 -4 -5 Operating performance Changes in investment assets 253 -667 -12 -120 0 ROE 14.7 20.8 23.1 24.2 16.0
Other investment cash flow -434 34 0 0 0 ROA 11.4 15.8 18.0 19.6 13.2 Cash flow from financing activities -46 -159 -99 -150 -326 ROIC 142.5 216.8 209.7 233.1 172.8 Proceeds from (repayment of) debt 86 -40 2 2 0 Financial structure (%)
Changes in equity 2 0 0 0 0 Total liab./equity 33.2 29.8 25.1 21.1 19.3 Dividends paid -125 -108 -176 -240 -326 Net debt/equity Net Cash Net Cash Net Cash Net Cash Net Cash Other financing cash flow -9 -12 76 88 0 Current ratio 4.6 4.8 5.9 7.1 7.9
Other cash flow 6 1 0 0 0 Interest coverage (x) 56.9 91.9 111.0 144.0 0.0 Increase/decrease in cash 118 -146 422 704 305 Activity ratios Cash and cash equivalents at FYE 303 157 580 1,284 1,589 Asset turnover (x) 0.5 0.7 0.6 0.7 0.6
Free cash flow 342 645 537 979 636 Receivables turnover (x) 8.4 9.7 8.5 8.8 9.4 Net cash flow 199 367 420 702 305 Payables turnover (x) 543.8 0.0 0.0 440.1 363.1 Net cash (net debt) 1,414 1,782 2,202 2,904 3,210 Inventory turnover (x) 1,105.6 1,733.4 2,914.0 2,588.1 2,717.5
Source(s): Company data, KB Securities estimates
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Disclosures Rating and Target Price Changes (Share price ━, Target Price ━)
KRW NCsoft NCsoft (036570) Date R ating Target Price Differential (%) 1,360,000 (KRW) Av g. Max / Min Apr-11-2019 Buy 610,000 -20.10 1,040,000 Aug-02-2019 Buy 630,000 -14.64 0.32 Jan-22-2020 Buy 750,000 -13.14 -10.40 720,000 Feb-12-2020 Buy 790,000 -18.04 -8.86
400,000 Mar-26-2020 Buy 780,000 -16.50 -10.38 May '19 Sep '19 Jan '20 May '20 Sep '20 Jan '21 May '21 May-12-2020 Buy 870,000 -2.12 14.37 Jul-21-2020 Buy 1,000,000 -18.74 -10.30 Nov-16-2020 Buy 1,050,000 -17.56 -6.19 Jan-06-2021 Buy 1,150,000 -19.41 -9.74 May-10-2021 Buy 1,100,000
KB Securities is a liquidity provider for stocks issued by NCsoft as of the date of this Proportion of investment rating (as of March 31, 2021) report. KB Securities is an issuer and liquidity provider of equity-linked warrants (ELW) that have stock of NCsoft underlying as of the date of this report. Buy Hold Sell 79.9 20.1 - KB Securities has not provided any material in this research report to institutional investors or third parties in advance of publication of this research report. The research analyst responsible for the preparation of this research report does not have any * Note: Based on reports presented with investment ratings over the past one year beneficial interest in any security or issuer covered and certifies that the analysis was made in good faith and that the views presented accurately reflect personal opinion without any undue influence or intervention.
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Note: KB Securities’ classification of investment ratings has shifted from four stages sources that KB Securities considers reliable. KB Securities makes no representation that (Strong BUY, BUY, Marketperform, Underperform) to three stages (Buy, Hold, Sell) the information and data are accurate or complete and the views presented in this report based on Korean reports since February 23, 2017. are subject to change without prior notification. Clients should independently consider KB Securities’ standards for stock rating shifted starting on Feb 10, 2020 from an their own particular circumstances and objectives and are solely responsible for their estimation of six-month absolute returns to an estimation of 12-month absolute returns. investment decisions and we shall not have liability for investments or results thereof. These materials are the copyright of KB Securities and may not be reproduced, Investment Rating for Industry redistributed or modified without the prior consent of KB Securities. Comments and (based on estimation of 12-month absolute returns) views in this report are of a general nature and intended for reference only and not Positive: Neutral: Negative: authorized for use for any other purpose. To outperform market To match market performance To underperform market
Notes: The industry rating system of KB Securities has shifted from (Overweight, Neutral, Underweight) to (Positive, Neutral, Negative) as of Jun 28, 2017. KB Securities’ standards for industry rating shifted starting on Feb 10, 2020 from an estimation of six-month absolute returns to an estimation of 12-month absolute returns.
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