Naver (035420)

Earnings in with Lowered Expectations

Danny Lee Yonghyun Choi Internet & Games / Media Research Associate April 30, 2021 +82-2-6114-2960 [email protected] +82-2-6114-2915 [email protected]

Maintain BUY; Raise TP to We maintain BUY on . We raise our TP by 2.3% to KRW450,000 as we have revised KRW450,000 up 2021E and 2022E OP by 0.6% and 3.2%, respectively, in light of the company’s growing market dominance in core businesses (i.e., ads, e-commerce). We have also changed our valuation methodology from sum-of-the-parts to DCF to reflect the company’s mid- to long-term growth potential.

1Q21 review: Solid revenue across all Naver reported 1Q21 revenue of KRW1.50tn (-0.9% QoQ, +29.8% YoY) and OP of businesses; OPM erodes due to higher KRW288.8bn (-10.8% QoQ, -1.0% YoY). While OP missed consensus by 3.3%, it was in stock compensation expenses line with our estimate. Key businesses have achieved solid revenue growth (search platform +16.8% YoY, commerce +40.3% YoY, fintech +52.2% YoY, content +40.1% YoY, cloud +71.7% YoY). In the search platform business, search revenue gained 9.6% YoY given a favorable comparison base, while display ad revenue jumped 46.3% YoY thanks to the launch of Smart Channel. Meanwhile, OPM eroded 1.1pp to 19.3% due to higher compensation expenses related to stock options and grants (KRW70.9bn in 1Q21; +1,144% YoY). Of note, the company recorded KRW14.9tn in one-off accounting gains from the business integration between LINE and Corp. (KRW17.9tn in fair value of stocks jointly held by A Holdings and LINE less KRW3tn in net assets and corporate taxes).

Profitability decline in 2021 a point of Major investment points—the strengthening market dominance of the commerce and concern, but visibility for mid- to fintech businesses, the ad market rebound, and the higher revenue contribution from long-term growth still high Smart Channel—remain intact. At the e-commerce business, in particular, Brand Store

Buy Maintain Trading Data Risk & Total Return (annualized over three years) Free float 80.2% Target Price (Raised) KRW450,000

Avg. T/O val. (3m, KRWbn) 343.5 Return 1 2 3 4 High5 Risk Dividend yield* 1.8% Foreign ownership 56.9% 1 FALSE FALSE FALSE TRUE FALSE Major shareholders National Pension Service 10.0% Total return 24.6% 2 FALSE FALSE FALSE FALSE FALSE Current price (Apr 29) KRW366,500 BlackRock Fund Advisors and 5.0% 3 FALSE FALSE FALSE FALSE FALSE Consensus target price KRW502,778 13 others

4High FALSE FALSE FALSE FALSE FALSE Market capitalization USD54.3bn Stock Price Performance 5 FALSE FALSE FALSE FALSE FALSE * 12-month forward (%) 1M 3M 6M 12M

Absolute -1.5 6.9 22.8 85.6

Relative -5.8 0.2 -10.0 13.9

Earnings Forecast & Valuation Stock Price & Relative Performance

Fiscal year-end 2020A 2021E 2022E 2023E Relative performance (LHS) Stock price (RHS) Revenue (KRWbn) 5,304 6,632 7,830 8,614 % KRW OP (KRWbn) 1,215 1,379 1,735 1,844 50 420,000 NP to control. int. (KRWbn) 1,002 16,384 1,764 1,298 40 EPS (KRW) 6,097 99,744 10,736 7,900 340,000 30 EPS growth (%) 72.3 1,536.0 -89.2 -26.4 20 260,000 P/E (x) 48.0 3.7 34.1 46.4 EV/EBITDA (x) 27.5 30.9 25.4 23.4 10 180,000 P/B (x) 6.5 2.5 2.5 2.3 0 ROE (%) 15.2 105.5 7.3 5.2 -10 100,000 Div. yield (%) 0.1 1.8 0.2 0.2 Apr '20 Jul '20 Oct '20 Jan '21 Apr '21

Source(s): Company data, KB Securities

should contribute increasingly to revenue once the company expands service offerings (e.g., fresh foods, luxury goods, gifts) and the solutions business gains traction. For the content business, revenue is expected to continue growing as the company plans to apply Naver Webtoon’s profit model to and produce video content based on its IP resources after completing the acquisition deal in 1H21. Given the nature of the platform business, OPM should enter a full-scale rebound from 2022 (20.8% in 2021 → 22.2% in 2022) after the company confirms growth in user indicators and revenue. Accordingly, we believe visibility for the company’s mid- to long-term growth remains high.

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Investment Opinion & Risks

Base-case scenario: Catalysts

Bull-case Scenario KRW500,000 (48.0x 2022E P/E) 1) Search Platform grows 13.4% YoY in 2021

2) Commerce grows 38.4% YoY in 2021

Base-case scenario (target price) KRW450,000 (43.0x 2022E P/E) Bull-case scenario: Upside risks

1) Search Platform grows 17% YoY in 2021

2) Commerce grows 43% YoY in 2021 Bear-case Scenario KRW400,000 (38.0x 2022E P/E)

Bear-case scenario: Downside risks 1) Search Platform grows 8% YoY in 2021 Current price (Apr 29, 2021) KRW366,500 2) Commerce grows 33% YoY in 2021

Revised Earnings Estimates Valuation & Target Price Calculation

(KRWbn, %) Previous Revised Change 2021E 2022E 2021E 2022E 2021E 2022E 1) Valuation method: Revenue 6,578.4 7,779.6 6,632.1 7,830.2 0.8 0.7 DCF Valuation OP 1,370.8 1,681.1 1,379.1 1,734.9 0.6 3.2 NP (to control. int.) 1,460.9 1,725.7 16,384.2 1,763.5 1,021.5 2.2 2) Target price calculation:

Source(s): KB Securities estimates Target market cap of KRW74.0tn

(WACC 5.76%, TGR 2.1%) KB Estimate vs. Consensus 3) Target price range: (KRWbn, %) KB Estimates Consensus Difference KRW400,000 – KRW500,000 2021E 2022E 2021E 2022E 2021E 2022E

Revenue 6,632.1 7,830.2 6,680.5 7,922.4 -0.7 -1.2 4) Valuation at target price: OP 1,379.1 1,734.9 1,360.9 1,686.8 1.3 2.9 2022E P/E 43

NP (to control. int.) 16,384.2 1,763.5 1,595.4 1,636.9 927.0 7.7

Source(s): Quantiwise, KB Securities estimates

Revenue Composition (2021E, %) Earnings Sensitivity Analysis (%) EPS change 2021E 2022E +1% in FX rate +0.3 +0.3 Search platform 14.6 +1pp in interest rate +0.4 +0.4

46.7 Commerce 23.5 Fintech

11.8 Content 29.0 Cloud

Source(s): KB Securities estimates

Peer Group Comparison

(KRWbn, x, %) Market Cap. Fwd P/E 5y EPS CAGR 12m fwd P/B 12m fwd EV/EBITDA 5y EBITDA CAGR

Alphabet 1,758,951.1 25.5 17.6 5.8 14.5 18.5

Facebook 966,376.4 21.9 50.9 5.2 11.6 38.0

Kakao 51,925.7 68.5 16.4 7.2 34.8 34.4

Naver 60,202.5 39.1 8.9 6.3 26.6 13.3

Source(s): Bloomberg consensus, KB Securities estimates

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Table 1. 1Q21 Earnings Results (KRWbn, %, pp) 1Q21P 4Q20 QoQ 1Q20 YoY KB Estimates Diff. Consensus Diff. Revenue 1,499.1 1,512.6 (0.9) 1,154.7 29.8 1,486.0 0.9 1,487.3 0.8 OP 288.8 323.8 (10.8) 291.8 (1.0) 290.7 (0.6) 298.5 (3.3) OP margin 19.3 21.4 (2.1) 25.3 (6.0) 19.6 (0.3) 20.1 (0.8) NP 15,310.5 424.5 3,506.5 184.8 8,184.7 360.6 4,145.6 633.0 2,318.8 (to control. int.) NP margin 1,021.3 28.1 993.2 16.0 1,005.3 24.3 997.0 42.6 978.8 (to control. int.)

Source(s): Quantiwise, KB Securities estimates

Table 2. Earnings Estimate Revisions (consolidated) 2021E 2022E (KRWbn, %, pp) Revised Previous Difference Consensus Difference Revised Previous Difference Consensus Difference Revenue 6,632.1 6,578.4 0.8 6,680.5 (0.7) 7,830.2 7,779.6 0.7 7,922.4 (1.2) OP 1,379.1 1,370.8 0.6 1,360.9 1.3 1,734.9 1,681.1 3.2 1,686.8 2.9 OP margin 20.8 20.8 (0.0) 20.4 0.4 22.2 21.6 0.5 21.3 0.9 NP 16,384.2 1,460.9 1,021.5 1,595.4 927.0 1,763.5 1,725.7 2.2 1,636.9 7.7 (to control. int.) NP margin 247.0 22.2 224.8 23.9 223.2 22.5 22.2 0.3 20.7 1.9 (to control. int.)

Source(s): Quantiwise, KB Securities estimates

Table 3. TP Calculation: DCF Model (KRWbn, %, ’000 shares, KRW) 2021E 2022E 2023E 2024E 2025E 2026E Cash flow projection Adjusted Free Cashflow 1,089.8 1,111.5 1,324.8 2,071.6 2,783.6 FCFF 1,079.2 1,111.5 1,324.8 2,071.6 2,783.6 3,741.2 NOPLAT 1,244.8 1,219.8 1,450.0 1,957.5 2,466.5 3,200.0 (+) Depreciation & amortization 521.5 552.4 575.2 667.2 787.3 944.8 (+/-) Changes in Working Capital 48.4 112.3 80.3 96.3 88.3 92.3 (-) Capital expenditure 440.0 444.4 448.8 314.2 219.9 154.0 (-) Stock grant 295.5 328.6 331.9 335.2 338.6 341.9 Present value of cash flow WACC 5.76 Discount 1.00 0.95 0.89 0.85 0.80 PV of cash flow 1,089.8 1,050.9 1,184.3 1,751.0 2,224.6 Terminal growth 2.2 30y KTB yield Terminal value 79,683.5 2026E FCFF / (WACC – TGR) PV of terminal value 63,682.2 7.46% WACC (0.67% risk-free rate; 7.37% market risk premium) Valuation EV 70,982.8 (-)Net debt (390.5) (+)Investments in Associate 2,243.0 (-)Non-Controlling Interests Equity 36.7 Fair EV 73,580 No. of shares 164,608 Target price 450,000 Current price 366,500 Apr 29, 2021 Upside 22.8

Source(s): Quantiwise, KB Securities estimates

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Maintain BUY; Raise TP to We raise our TP by 2.3% to KRW450,000 as we have revised up 2021E and 2022E OP KRW450,000 by 0.6% and 3.2%, respectively, in light of the company’s growing market dominance in core businesses (i.e., ads, e-commerce). We have derived our new TP using the DCF model (5.76% WACC; 2.1% TGR). Meanwhile, 1Q21 NP has been pushed up by one- off gains related to the business integration between LINE and Z Holdings Corp. (KRW14.9tn). However, these were accounting gains and did not generate cash inflows (KRW17.9tn in fair value of investments less KRW3tn in net assets and corporate taxes). We maintain BUY as our revised TP offers an upside of 22.8% to the current price.

Table 4. TP Sensitivity to WACC and TGR KRW TGR (%) 1.4 1.6 1.8 2.0 2.2 2.4 2.6 2.8 3.0 5.16 432,587 454,194 478,365 505,586 536,474 571,822 612,672 660,416 716,961 5.36 410,975 430,294 451,778 475,812 502,878 533,590 568,737 609,355 656,828 5.56 391,441 408,808 428,018 449,380 473,277 500,190 530,728 565,676 606,063 WACC (%) 5.76 373,702 389,389 406,658 425,759 447,000 470,762 497,523 527,887 562,637 5.96 357,520 371,754 387,353 404,524 423,517 444,638 468,266 494,875 525,068 6.16 342,700 355,667 369,820 385,332 402,406 421,291 442,293 465,788 492,247 6.36 329,078 340,934 353,828 367,901 383,325 400,303 419,083 439,966 463,329

Source(s): Quantiwise, KB Securities estimates

Table 5. WACC Calculation

(KRWbn, %) Previous Revised Notes COE (A) = a + b x c 6.28 6.42 Risk-free rate (a) 0.68 0.68 Avg. 1y MSB yield (last 3 months) Adj. beta (b) 0.76 0.78 Adj. beta Risk premium (c = d - e) 7.37 7.37 Market (d) 10.97 10.97 2001-2020 annual avg. WMI500 total return Risk-free rate (e) 3.61 3.61 2001-2020 avg. 1y MSB yield COD (B) 1.72 1.72 YTD yield of 1y KRW-based bonds Debt -391 Net debt Weight of equity value (f) 86.00 2021E Total Equity / Total Assets Weight of debt (g) 14.00 WACC (C) = (A x f) + (B x g) 5.76

Source(s): KB Securities estimates Note: Previous COE based on data as of Mar 31, 2021 (TP calculation based on sum-of-the-parts analysis)

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Table 6. Sum-of-the-Parts Valuation

(KRWbn, x, %,’000, KRW) Value Notes Search Platform 24,870 12m fwd NOPLAT 960 Assuming 40% OPM/26% tax rate Target multiple (x) 25.9 12m fwd P/E of Alphabet Commerce 19,294 12m fwd NOPLAT 364.9 Assuming 30% OPM/26% tax rate Target multiple (x) 52.9 12m fwd P/E of Amazon Z Holdings stake (KRWbn) 13,777 Z Holdings + LINE market cap. (KRWbn) 42,586 Naver’s stake (%) 32.4 64.7% owned by A Holdings Naver Financial stake (KRWbn) 2,797 50% premium applied Naver Financial market cap. (KRWbn) 3,996 vs. EV upon investments from Mirae Asset Daewoo Naver's stake (%) 70.0 Webtoon Ent. stake (KRWbn) 5,513 Webtoon Ent. market cap. (KRWbn) 8,278 12m fwd transaction value 1,148 Naver + Line Target multiple (x) 7.2 Netflix's 12m fwd P/S Naver's stake (%) 66.6 Excl. Line's 33.4% stake Invested assets 7,810 CJ Logistics 320 Naver’s 7.85% stake CJ ENM 155 Naver’s 5.00% stake Studio Dragon 184 Naver’s 6.26% stake YG Entertainment 67 Naver’s 8.5% stake Mirae Asset Daewoo 451 Naver’s 7.11% stake Wattpad 653 Naver’s 100% stake beNX 412 Naver’s 49% stake Treasury shares (KRWbn) 5,957 9.71% stake Net debt (KRWbn) (391) 4Q20 standalone Fair market cap. (KRWbn) 74,062 No. of shares ('000) 164,608 Fully diluted Target price (KRW) 450,000 Current price (KRW) 366,500 Upside (%) 22.8

Source(s): KB Securities estimates

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Table 7. Earnings Forecast (consolidated)

(KRWbn) 1Q20 2Q20 3Q20 4Q20 1Q21P 2Q21E 3Q21E 4Q21E 2019 2020 2021E 2022E

Revenue 1,154.7 1,276.0 1,360.8 1,512.6 1,499.1 1,627.3 1,669.9 1,835.8 4,356.2 5,304.1 6,632.1 7,830.2

(YoY %) 16.3 17.2 24.2 28.3 29.8 27.5 22.7 21.4 (22.0) 21.8 25.0 18.1

(QoQ %) (2.1) 10.5 6.6 11.2 (0.9) 8.6 2.6 9.9 - - - -

Search Platform 644.7 678.2 710.1 770.2 752.7 791.1 782.5 851.2 2,654.6 2,803.2 3,177.6 3,444.4

Search 433.0 439.7 451.7 471.2 474.8 488.9 489.0 515.6 1,750.5 1,795.6 1,968.4 2,113.7

Display 125.1 150.5 168.1 204.8 183.0 204.4 195.7 232.4 554.0 648.5 815.5 907.9

Commerce 231.2 256.2 285.4 316.8 324.4 360.3 392.7 430.2 792.1 1,089.6 1,507.6 1,902.5

Fintech 137.6 164.7 174.0 201.1 209.5 233.9 243.9 277.3 406.6 677.4 964.6 1,286.5

Contents 93.4 112.9 115.0 138.9 130.8 149.1 155.2 173.6 309.3 460.2 608.7 747.4

Cloud 47.7 64.1 76.3 85.6 81.7 93.0 95.5 103.4 193.6 273.7 373.6 449.3

Revenue YoY% 16.3 17.2 24.2 28.3 29.8 27.5 22.7 21.4 (22.0) 21.8 25.0 18.1

Search Platform 2.9 (0.3) 8.2 11.3 16.8 16.7 10.2 10.5 - 5.6 13.4 8.4

Search 3.5 (1.4) 3.6 4.7 9.6 11.2 8.3 9.4 - 2.6 9.6 7.4

Display 0.5 3.9 26.3 35.0 46.3 35.8 16.4 13.5 - 17.1 25.8 11.3

Commerce 30.3 32.7 40.9 44.6 40.3 40.6 37.6 35.8 - 37.6 38.4 26.2

Fintech 57.6 72.4 67.6 67.7 52.2 42.0 40.2 37.9 - 66.6 42.4 33.4

Contents 55.4 44.5 31.8 65.7 40.1 32.0 35.0 25.0 - 48.8 32.3 22.8

Cloud 14.5 53.6 66.2 33.1 71.1 45.1 25.2 20.8 - 41.4 36.5 20.3

Operating costs 862.9 968.0 1,069.1 1,188.9 1,210.3 1,293.1 1,316.8 1,432.8 3,201.2 4,088.8 5,253.0 6,095.3

(YoY %) 22.8 23.3 32.1 31.6 40.3 33.6 23.2 20.5 (31.1) 27.7 28.5 16.0

(QoQ %) (4.5) 12.2 10.4 11.2 1.8 6.8 1.8 8.8 (19.6) 29.3 19.3 14.7 Development & 282.9 289.7 311.7 312.4 374.3 378.8 412.7 414.7 1,029.0 1,196.6 1,580.4 1,832.7 Operations

Partners 377.2 427.5 457.0 534.9 510.0 561.8 559.4 633.7 1,393.0 1,796.6 2,264.9 2,662.3

Infrastructure 110.9 136.1 144.8 157.9 155.0 173.6 177.7 191.6 421.2 549.8 697.9 817.4

Marketing 91.9 114.7 155.6 183.7 171.0 179.0 167.0 192.8 358.0 545.9 709.7 783.0

Operating profit 291.8 308.1 291.7 323.8 288.8 334.2 353.1 403.0 1,155.0 1,215.3 1,379.1 1,734.9

(YoY %) 0.6 1.6 1.8 17.6 (1.0) 8.5 21.0 24.5 22.5 5.2 13.5 25.8

(QoQ %) 5.9 5.6 (5.3) 11.0 (10.8) 15.7 5.7 14.1 - - - -

OPM (%) 25.3 24.1 21.4 21.4 19.3 20.5 21.1 22.0 26.5 22.9 20.8 22.2 NP 184.8 147.3 245.5 424.5 15,310.5 304.2 394.7 374.8 583.1 1,002.1 16,384.2 1,763.5 (to control. int.)

(YoY %) 42.5 85.9 95.7 70.7 8,184.7 106.6 60.8 (11.7) (10.1) 71.9 1,535.1 (89.2)

(QoQ %) (25.7) (20.3) 66.7 72.9 3,506.5 (98.0) 29.8 (5.0) - - - -

NPM (%) 16.0 11.5 18.0 28.1 1,021.3 18.7 23.6 20.4 13.4 18.9 247.0 22.5

Source(s): Company data, KB Securities estimates

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Fig 1. Earnings Forecast Fig 2. Revenue Growth (YoY)

Revenue (L) OP (L) OPM (R) Search ads Display ads (KRWbn) (%) Commerce Fintech (%) Content Cloud 2,000 35 80 1,800 30 70 1,600 60 1,400 25 50 1,200 20 1,000 40 800 15 30 20 600 10 400 10 5 200 0 0 0 -10 1Q19 3Q19 1Q20 3Q20 1Q21 3Q21E 1Q20 3Q20 1Q21P 3Q21E

Source(s): Company data, KB Securities estimates Source(s): Company data, KB Securities estimates

Fig 3. OPM & Development/Marketing Expenses Fig 4. Stock Compensation Expense

(%) OPM (KRWbn) Other labor expenses (L) (% YoY) Development & operation expenses as % of revenue Stock-based compensation expense (L) 50 Marketing expenses as % of revenue 500 Growth in development & operation expenses (R) 35

40 30 400 25 30 300 20

20 200 15 10 10 100 5

0 0 0 1Q19 3Q19 1Q20 3Q20 1Q21 3Q21E 1Q20 3Q20 1Q21 3Q21E

Source(s): Company data, KB Securities estimates Source(s): Company data, KB Securities estimates

Fig 5. Transaction Value Fig 6. Market Capitalization: Naver, Z Holdings, LINE

NAVER (L) Z HOLDINGS (R) LINE (R) Naver Pay GMV (L) YoY (R) (KRWbn) (%) (%) (JPYtn) 9 180 70 6 8 160 60 5 7 140 50 6 120 4 5 100 40 3 4 80 30 3 60 2 20 2 40 10 1 1 20 0 0 0 0 15.9 16.9 17.9 18.9 19.9 20.9 19.1 19.4 19.7 19.10 20.1 20.4 20.7 20.10 21.1 21.4

Source(s): Company data, KB Securities Source(s): Bloomberg, 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 4,356 5,304 6,632 7,830 8,614 Total assets 12,300 17,014 28,702 29,539 30,762

Cost of revenue 0 0 0 0 0 Current assets 5,644 10,545 4,405 5,338 6,696 Gross profit 4,356 5,304 6,632 7,830 8,614 Cash and cash equivalents 3,741 1,600 2,077 2,965 4,323 SG&A expenses 3,201 4,089 5,253 6,095 6,770 Current financial assets 372 1,216 1,216 1,216 1,216

Operating profit 1,155 1,215 1,379 1,735 1,844 Trade receivables 0 0 0 0 0 EBITDA 1,653 1,711 1,901 2,283 2,419 Inventory 55 4 5 5 5 Non-operating accounts 236 418 16,689 770 0 Other current assets 1,476 7,724 1,107 1,152 1,152

Interest income 11 16 27 31 0 Non-current assets 6,656 6,470 24,297 24,201 24,066 Interest expenses 17 22 46 51 0 Investment assets 3,487 4,347 22,256 22,268 22,268 Profit on equity method 18 116 414 579 0 Property, plant and equipment 1,596 1,685 1,596 1,483 1,344

Net other non-operating income 223 308 16,294 212 0 Intangible assets 341 105 112 117 121 Profit before tax 1,391 1,634 18,068 2,505 1,844 Other non-current assets 1,231 333 333 333 333 Income tax expense 471 493 1,724 701 516 Total liabilities 5,796 8,759 4,091 4,098 4,098

Net profit 397 845 16,415 1,804 1,327 Current liabilities 3,773 7,912 3,242 3,247 3,247 NP attributable to controlling interests 583 1,002 16,384 1,764 1,298 Trade payables 0 0 5 10 10 Adj. net profit 583 1,002 16,384 1,764 1,298 Short-term financial liabilities 729 647 647 647 647

Other current liabilities 3,044 7,265 2,590 2,590 2,590 Operating Statistics & Ratios Non-current liabilities 2,022 847 849 851 851 (%) 2019A 2020A 2021E 2022E 2023E Non-current financial liabilities 1,366 251 253 255 255

Revenue growth -22.0 21.8 25.0 18.1 10.0 Other non-current liabilities 657 597 597 597 597 OP growth 22.6 5.2 13.5 25.8 6.3 Total equity 6,504 8,255 24,611 25,441 26,664

EBITDA growth 37.3 3.5 11.1 20.1 6.0 Issued capital 16 16 16 16 16 NP growth of parent -10.1 71.9 1,535.0 -89.2 -26.4 Share premium 1,575 1,793 1,793 1,793 1,793 GP margin 100.0 100.0 100.0 100.0 100.0 Other equity interest -1,408 -1,204 -1,204 -1,204 -1,204

OP margin 26.5 22.9 20.8 22.2 21.4 Accumulated other comprehensive income -91 106 106 106 106 EBITDA margin 38.0 32.3 28.7 29.2 28.1 Retained earnings 5,712 6,655 22,980 23,770 24,963 EBT margin 31.9 30.8 272.4 32.0 21.4 Controlling interests 5,805 7,367 23,692 24,482 25,675

NP margin of parent 13.4 18.9 247.1 22.5 15.1 Non-controlling interests 699 888 919 959 989

Statement of Cash Flows Key Ratios

(KRWbn) 2019A 2020A 2021E 2022E 2023E (x, %, KRW) 2019A 2020A 2021E 2022E 2023E

Cash flow from operating activities 1,357 1,447 1,671 1,885 1,903 Multiples Net profit 397 845 16,415 1,804 1,327 P/E 52.7 48.0 3.7 34.1 46.4

Depreciation & amortization 498 495 522 548 575 P/B 5.3 6.5 2.5 2.5 2.3

Other non-cash adjustments 375 474 1,310 123 516 P/S 7.1 9.1 9.1 7.7 7.0 Investments in working capital 567 227 48 112 0 EV/EBITDA 17.8 27.5 30.9 25.4 23.4

Decrease(Increase) in receivables -56 -110 0 0 0 EV/EBIT 25.5 38.7 42.6 33.4 30.7 Decrease(Increase) in inventory 0 0 -1 -1 0 Dividend yield, ordinary (%) 0.2 0.1 1.8 0.2 0.2 Increase(Decrease) in payables 178 214 5 5 0 EPS 3,538 6,097 99,744 10,736 7,900

Investments in other working capital 444 123 44 108 0 BVPS 35,223 44,850 144,233 149,042 156,304 Other operating cash flow -479 -595 -16,624 -701 -516 SPS 26,431 32,274 40,375 47,669 52,440 Cash flow from investing activities -1,078 -2,503 -1,464 -452 -440 DPS (annual, ordinary) 376 402 6,573 707 707

Capital expenditure -429 -750 -400 -400 -400 Cash dividends payout ratio (%) 9.4 5.9 5.9 5.9 8.1 Investments in intangibles -71 -103 -40 -40 -40 Operating performance Changes in investment assets -717 -1,561 -17,909 -12 0 ROE 10.6 15.2 105.5 7.3 5.2

Other investment cash flow 139 -89 16,885 0 0 ROA 3.6 5.8 71.8 6.2 4.4 Cash flow from financing activities 52 1,192 270 -546 -105 ROIC 70.3 103.9 938.8 360.6 560.4 Proceeds from (repayment of) debt 6 1,131 2 2 0 Financial structure (%)

Changes in equity -94 -16 0 0 0 Total liab./equity 89.1 106.1 16.6 16.1 15.4 Dividends paid -47 -55 -94 -1,538 -105 Net debt/equity Net Cash Net Cash Net Cash Net Cash Net Cash Other financing cash flow 186 132 362 990 0 Current ratio 1.5 1.3 1.4 1.6 2.1

Other cash flow 87 -2,276 0 0 0 Interest coverage (x) 69.8 56.1 30.0 33.9 0.0 Increase/decrease in cash 418 -2,140 477 888 1,358 Activity ratios Cash and cash equivalents at FYE 3,741 1,600 2,077 2,965 4,323 Asset turnover (x) 0.4 0.4 0.3 0.3 0.3

Free cash flow 928 697 1,271 1,485 1,503 Receivables turnover (x) 0.0 0.0 0.0 0.0 0.0 Net cash flow -836 -99 475 886 1,358 Payables turnover (x) 0.0 0.0 0.0 1,044.0 861.4 Net cash (net debt) 2,018 1,919 2,394 3,279 4,637 Inventory turnover (x) 77.4 178.4 1,443.3 1,536.9 1,611.6

Source(s): Company data, KB Securities estimates

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Disclosures Rating and Target Price Changes (Share price ━, Target Price ━)

KRW Naver Naver (035420) Date R ating Target Price Differential (%) 500,000 (KRW) Av g. Max / Min 420,000 Apr-26-2019 Buy 150,000 -22.26 340,000 Jul-26-2019 Buy 160,000 -8.23 -0.63 260,000 Sep-26-2019 Buy 190,000 -18.66 -13.68 180,000 Nov-01-2019 Buy 200,000 -11.50 -4.25 Jan-30-2020 Buy 230,000 -24.45 -17.17 100,000 Apr '19 Aug '19 Dec '19 Apr '20 Aug '20 Dec '20 Apr '21 Mar-30-2020 Buy 215,000 -20.17 -15.35 Apr-23-2020 Buy 225,000 -7.13 -2.44 May-19-2020 Buy 250,000 May-20-2020 Buy 225,000 5.41 11.56 Jun-22-2020 Buy 298,000 -6.23 0.34 Jul-31-2020 Buy 355,000 -13.72 -4.51 Oct-30-2020 Buy 370,000 -20.64 -5.68 Jan-28-2021 Buy 440,000 -13.67 -8.30 Apr-30-2021 Buy 450,000

KB Securities is an issuer and liquidity provider of equity-linked warrants (ELW) that have Proportion of investment rating (as of March 31, 2021) stock of Naver underlying as of the date of this report. Buy Hold Sell KB Securities has not provided any material in this research report to institutional 79.9 20.1 - 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.

Classification and Standards for Investment Rating All research reports are available through electronic publication on Bloomberg, Thomson Reuters and FactSet. Please contact your KB Securities sales representative for access. Investment Rating for Company (based on estimation of 12-month absolute returns) This report is provided for information only and is not an offer or solicitation to trade in Buy: +15% or beyond Hold: Between 15% and -15% Sell: -15% or beyond any security. Opinions in this report reflect the professional judgment of the research analyst(s) as of the date hereof and are based on information and data obtained from

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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