20170116-三星证券-Growth_limited_to_select_large_players_39页_1mb

Sector Update Summary

Core Content

This document is a sector update from Samsung Securities, analyzing the performance and future outlook of several Korean and global game companies. It highlights the growth of the Korean game industry, particularly in the mobile gaming segment, and provides target prices, earnings forecasts, and market valuations for key firms.

Main Points

1. Industry Performance

• The combined sales and operating profit of game firms under Samsung Securities' coverage likely rose by 10.5% and 11.3% quarter-over-quarter (QoQ) in 4Q16, respectively.
• Seasonal demand and new hits, such as Lineage II: Revolution, contributed to the sales growth.
• Marketing costs increased due to the launch of new mobile games, but operating profits still rose due to strong performance from established titles and new offerings.

2. Market Trends

• The mobile game era is accelerating, with several companies launching games based on established IPs (Intellectual Property).
• NCsoft is highlighted as the top sector pick due to its strong IP portfolio, capital flow, and blockbuster mobile game launches.
• The document notes that competition is intensifying, and only large players with the ability to develop and market new blockbusters are likely to see meaningful growth.

3. Key Companies and Target Prices

• NCsoft (036570 KS): Target price KRW350,000 (upside 26.4%)
• NHN Entertainment (181710 KS): Target price KRW63,000 (upside 23.5%)
• WeMade Entertainment (112040 KS): Target price KRW24,000 (upside 6.9%)
• Com2us (078340 KS): Target price KRW100,000 (upside 9.9%)
• Gamevil (063080 KS): Target price KRW53,000 (upside 8.8%)

4. Valuation Metrics

• P/E (2017E): NCsoft at 15.9x, NHN Entertainment at 19.6x, WeMade at 24.1x, Com2us at 8.4x, Gamevil at 9.7x
• P/B (2017E): NCsoft at 2.8x, NHN Entertainment at 0.6x, WeMade at 16.3x, Com2us at 1.5x, Gamevil at 1.1x
• EV/EBITDA (2017E): NCsoft at 10.0x, NHN Entertainment at 8.1x, WeMade at 2.3x, Com2us at 2.6x, Gamevil at 24.2x

5. Company-Specific Highlights

NCsoft

• Top Sector Pick: Strong performance in 4Q16 with KRW254.1b in sales and KRW78.7b in operating profit.
• Lineage II: Revolution was a major success, achieving KRW50b in two weeks.
• Expected to maintain robust growth in 2017, with operating profit up 53.9% y-y.
• New titles like Lineage on Mobile, Aion Legions of War, and Lineage Eternal are expected to drive growth.

NHN Entertainment

• Target Price: KRW63,000 (upside 23.5%)
• Licensing Success: Signed additional Mir IP contracts, leading to a revised target price.
• Legal Risks: The stock remains at HOLD due to a prolonged legal dispute with Shanda Games.

WeMade Entertainment

• Target Price: KRW24,000 (upside 6.9%)
• IP-Based Games: Expected to launch games like Friends Jelly and Icarus Mobile.
• Legal Dispute: The stock remains at HOLD due to ongoing issues.

Com2us

• Target Price: KRW100,000 (upside 9.9%)
• HOLD Rating: Due to lack of potential hits in its pipeline.
• New Releases: Includes titles like MLB 9 Innings and Souls, with IP-based games expected to drive growth.

Gamevil

• Target Price: KRW53,000 (upside 8.8%)
• HOLD Rating: Due to limited new hits.
• New Titles: Includes Devilian, War of Crown, and ACE.

6. Global Comparison

• Global Internet Companies: Includes Activision Blizzard, EA, Nexon, Colopl, DeNA, NetEase, Gungho, etc.
• Valuation Metrics: Reflects P/E, P/B, and EV/EBITDA for these companies, with NCsoft showing a discount to global peers.

7. Upcoming Releases

• NCsoft: Lineage on Mobile (1Q17), Aion Legions of War (2Q17), Lineage Eternal (2H17)
• NHN Entertainment: Angry Birds IP, Comico IP, Ufalu Saga 2
• Gamevil: War of Crown (1Q17), ACE (2Q17), Nine Hearts (2H17)
• Com2us: God of Fishing VR, Inotia, Project DD, Project G2
• WeMade: Mir II web games, Icarus Mobile, Mir mobile

8. Market Share and Trends

• Korea's Mobile Game Rankings: Lineage II: Revolution (1st), Everyone's Marble (2nd), Seven Nights for Kakao (3rd), Lineage Red Knights (4th), etc.
• China's Mobile Game Rankings: Hero Moba (1st), Yin and Yang (2nd), Fantasy Westward Journey (3rd), etc.

9. Financial Forecasts

• Revenue Growth: NCsoft is expected to grow from KRW838b in 2015 to KRW1,516b in 2018.
• Net Profit Growth: NCsoft's net profit is expected to increase from KRW166b in 2015 to KRW502b in 2018.
• EPS Growth: NCsoft's EPS is expected to grow from KRW8,389 in 2015 to KRW23,199 in 2018.

Key Information

• Growth is limited to select large players who can develop and market blockbusters.
• IP-based games are becoming more prevalent, and companies with strong IPs (like NCsoft) are expected to benefit.
• Valuation changes are noted for each company, with some showing increased upside due to new contracts or game launches.
• Legal disputes and pipeline limitations are concerns for some firms, affecting their ratings and target prices.
• Mobile games are driving growth, with Lineage II: Revolution setting new records in sales.
• New game releases are expected to continue throughout 2017, with a focus on IP-based titles and mobile adaptations.

Summary

The Korean game industry is experiencing growth driven by new mobile titles and strong IP utilization. Companies like NCsoft are leading the charge with their established IP and strong financial performance. However, the sector is becoming more competitive, and only those with the resources and capabilities to develop and market blockbusters are likely to see meaningful gains. Samsung Securities maintains a BUY rating on NCsoft, with a target price of KRW350,000, while other companies are either HOLD or SELL based on their performance and challenges.