NCsoft (036570) Korea – Equity Research

Popularity and sales rankings exceed expectations Internet

Buy Over 100k of gamers estimated to have participated in close-beta testing in 2 Sep 2009 US and Bloomberg: 036570 KS When Aion was first mentioned in US and Europe, expectations were rather low. Target Price (12M, W): 280,000 Professional game critics in US and Europe were harsh on AionÊs graphics and content, Share Price (09/01/09, W): 143,000 considering ① there has not been a successful MMORPG after World of Warcraft Expected Return (%): 95.8 (WoW), and ② no MMORPG produced in Asia has ever been a blockbuster success in Sector: Internet and Services US and Europe due to the cultural gap. As such, game critics have been skeptical about Sector Rating: Overweight the success of Aion in US and Europe. EPS Growth (09F, %): 636.9 Market EPS Growth (09F, %): 54.5 However, Aion maintains its top ranking in popularity and sales charts. We estimate that P/E (X): 14.5 over 100k gamers, who made full advance payment, took part in close-beta testing by Market P/E (09/01/09F, X): 14.6 Aug. 17. While it remains premature to determine the gameÊs future success, we are Market Cap (Wbn): 3,101 impressed by AionÊs better-than-expected ranking on popularity and sales charts in US. Shares Outstanding (mn): 22 Figure 1. The article of PC game sales chart in KOTAKU Avg Trading Volume (60D, '000): 579 Avg Trading Value (60D, Wbn): 83 Margin Balance ('000 sh): 457 Dividend Yield (09F, %): .7 Free Float (%): 64.0 52-Week Low/High: 24,400/193,000 Beta (12M, Daily Rate of Return): 0.8 Price Return Volatility (12M Daily, %,SD): 4.4 Foreign Ownership (%): 17.4 Major Shareholder(s): T. J. Kim et al. (26.54%) Mirae Asset Mgt. et al (14.38%) Treasury stock (9.41%) Price Performance (%) 1M 6M 12M Absolute 7.5 102.5 180.4 Relative 3.3 49.9 165.6

Source: kotaku.com

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 473 235 49.7 201 9,831 252 179 39.5 14.5 4.9 10.9 120

12/10F 571 313 54.9 297 14,526 333 230 40.0 9.8 3.3 7.5 20 12/11F 677 397 58.7 403 19,673 419 302 37.5 7.3 2.3 5.1 8/08 12/08 4/09 8/09 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

Figure 2. Weekly unique hits for Aion at MMORPG.com Figure 3. Monthly unique hits for Aion at MMORPG.com ('000) ('000) 200 weekly 800 monthly

150 600

100 400

50 200

0 0 Aug 14 Aug 21 Aug 28 Sep 4 Sep 11 Sep 18 Aug 14 Aug 21 Aug 28 Sep 4 Sep 11 Sep 18

Source: mmorpg.com, Daewoo Securities Research Source: mmorpg.com, Daewoo Securities Research

Figure 4. Semi-annual unique hits for Aion at MMORPG.com Figure 5. Annual unique hits for Aion at MMORPG.com ('000) ('000) 2,000 semi-annually 3,000 annually

1,500 2,250

1,000 1,500

500 750

0 0 Aug 14 Aug 21 Aug 28 Sep 4 Sep 11 Sep 18 Aug 14 Aug 21 Aug 28 Sep 4 Sep 11 Sep 18

Source: mmorpg.com, Daewoo Securities Research Source: mmorpg.com, Daewoo Securities Research

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 110,921 Aion 417,820 Aion 1,360,348 Warhammer Online 2,526,150 2 Champions Online 51,371 World of Warcraft 176,746 Warhammer Online 804,420 Aion 1,937,235 3 World of Warcraft 31,031 Champions Online 138,332 Star Wars: The Old Republic 690,411 Darkfall 1,630,930 4 Darkfall 31,605 Warhammer Online 114,909 Darkfall 646,572 World of Warcraft 1,274,454 5 Star Wars: The Old Republic 30,637 Star Wars: The Old Republic 109,348 World of Warcraft 643,103 Age of Conan 1,248,118 6 Warhammer Online 29,608 Darkfall 103,897 Age of Conan 612,169 of the Rings Online 1,194,566 7 Age of Conan 24,604 EVE Online 97,527 Atlantica Online 540,914 Atlantica Online 1,108,628 8 EVE Online 23,967 Atlantica Online 94,153 Lord of the Rings Online 528,489 EVE Online 1,014,697 9 Atlantica Online 23,003 Age of Conan 89,550 EVE Online 525,080 Star Wars: The Old Republic 993,982 10 Earth Eternal 20,513 City of Heroes 88,207 The Chronicles of Spellborn 451,830 The Chronicles of Spellborn 915,111 Note: Based on September 1, 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

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Figure 6. Aion weekly ranking

Jun 14 Jul 5 Jul 26 Aug 16 Sep 6 Sep 27 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Direct2Drive 15 (rank)

Note: based on revenue, the characteristic of each site is in Table 6. Source Steam, Direct2Drive, 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. Left 4 Dead / Valve 1. Champions Online (pre-order) / Cryptic 2. Aion Collector's Edition (pre-order) / NCsoft 2. Fallen Earth (pre-order) / Fallen Earth, Icarus Studios 3. Counter-Strike: Source / Valve 3. Aion Collector's Edition (pre-order) / NCsoft 4. Killing Floor / Tripwire 4. Rise of Flight / neoqb 5. Team Fortress 2 / Valve 5. Civilization 4: The Complete Edition / Firaxis 6. Fallout Collection (F1, F2, Fallout Tactics) 6. The Sims 3 / The Sims Studio 7. The Orange Box / Valve 7. Fallout 3 / Bethesda Softworks 8. Hearts Of Iron III / Paradox Interactive 8. Hearts of Iron III with Sprite Packs Bundle / Paradox Interactive 9. Valve Complete Pack / Valve 9. Call of Duty 4: Modern Warfare / Infinity Ward 10. Osmos / Hemisphere Games 10. Neverwinter Nights 2 Complete Bundle / Obsidian Note: Based on the sales result in August 16~22, the ranking is calculated by revenue size Source: Steam, Direct2Drive, Daewoo Securities Research

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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 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 play in videogames.

Source: Company data, Daewoo Securities Research

4 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 1, 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 5/08 8/08 11/08 2/09 5/09 8/09

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 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.

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