20161013-三星证券-3Q_preview__Difficult_days__polarization_intensifies_35页_1mb

Sector Update Summary

Core Content

This document provides a sector update on Korean and global game companies, focusing on 3Q 2016 performance, upcoming titles, and valuation metrics. It highlights the challenges faced by Korean game firms, including declining profitability and the difficulty of new games breaking through in a competitive market. The analysis emphasizes the importance of new mobile titles and the potential for future growth, particularly for companies with strong IP and development capabilities.

Main Points

3Q 2016 Performance Outlook

• Korean game companies are expected to report a combined operating profit decline of 18.3% q-q, missing consensus by 9.5%.
• New mobile games underperformed, while marketing costs increased.
• NCsoft is highlighted as the top pick, with a target price of KRW350,000 (21.3% upside).
• Com2us and Gamevil are downgraded to HOLD, due to declining profitability from their flagship titles and disappointing new game performance.
• WeMade Entertainment is also downgraded to HOLD due to legal risks surrounding its Mir IP.

Share Price Performance

• NCsoft shares advanced 25.2% in 3Q due to anticipation of new titles.
• Other companies showed lackluster performance in the quarter.

Upcoming Titles

• NCsoft has a robust release schedule with several mobile titles set to launch in 3Q and 4Q 2016, including:
  • Lineage II: Revolution (end-October or early-November)
  • Lineage RK (November)
  • Lineage M (December)
• Com2us and Gamevil have upcoming titles, but their release dates have been delayed.
• WeMade is launching CandyPang II for Kakao and Fishing Strike in 4Q 2016.

Valuation and Market Position

• Global game companies like EA and Activision Blizzard are compared with Korean firms.
• NCsoft is valued at KRW349,441 based on 12-month forward EPS and is maintained at BUY.
• Com2us and Gamevil are at HOLD due to lower upside potential and uncertainty around new game performance.
• WeMade is at HOLD due to legal risks and poor performance.

Key Information

Financial Performance (3Q 2016)

Performance Changes

• NCsoft is expected to have a KRW220.9b in sales, up 12.9% y-y but down 8.2% q-q.
• Com2us is expected to have sales of KRW220.4b, down 0.3% y-y but up 35.1% q-q.
• Gamevil sales are down 1.0% y-y and down 2.8% q-q.
• WeMade sales are down 1.9% y-y and down 8.5% q-q.

Valuation Metrics

Upcoming Titles

Conclusion

The Korean game sector is facing increased competition from both established games and overseas titles, leading to performance polarization. NCsoft is the top pick due to its upcoming strong titles and solid IP. Other companies like Com2us, Gamevil, and WeMade are downgraded due to underperformance and external risks. The report suggests a conservative approach for the latter three, while maintaining a BUY rating for NCsoft.