"Kakao Games Corp. expected to return to profitability next year; target price raised"

[Financial News] Hyundai Motor Securities forecast that Kakao Games Corp. would return to profitability next year, buoyed by new game releases and a recovery in South Korea’s massively multiplayer online role-playing game (MMORPG) market. It accordingly raised its investment rating from “Neutral” to “Buy” and its target price from 11,000 won to 13,000 won.
On the 8th, Hyundai Motor Securities analyst Choi Seung-ho said, “In South Korea’s mobile game market recently, Chinese strategy simulation games (SLGs) have been declining while MMORPGs have been gaining share,” adding, “This is a positive environment for Kakao Games Corp., which is preparing two new mobile MMORPGs.”
Hyundai Motor Securities therefore expects Kakao Games Corp. to return to profitability next year, with revenue rising 128% year on year to 818.5 billion won and operating profit reaching 96 billion won. Its projected operating loss this year is 100.3 billion won. The firm said earnings improvement would gather momentum as the effects of new game releases are joined by the acquisition of Me2on and cost efficiencies.
Key upcoming releases include “Dokkaebi’s World,” scheduled to launch that day, and “Odin Q,” expected to launch next January. Analyst Choi projected initial daily revenue of 600 million won for Dokkaebi’s World and average daily revenue of around 1.5 billion won during the 30 days after Odin Q’s launch. New titles including “Chrono Odyssey” and “ArcheAge S” are also scheduled for release in the second quarter of next year.
However, the firm expects losses to widen through the third quarter of this year. Hyundai Motor Securities estimates Kakao Games Corp.’s third-quarter revenue at 72 billion won and its operating loss at 29.7 billion won. This is due to continued declines in revenue from existing games amid a lack of new releases, as well as marketing costs incurred in advance of Dokkaebi’s World’s launch.
Analyst Choi explained, “We took into account the possibility of emerging from two years of losses, as well as the potential for shareholder returns and further mergers and acquisitions using around 900 billion won in cash.” He added, “With a high target price-to-earnings ratio (PER) applied, the valuation leaves limited room for upside,” and “With the performance of new titles not yet established, the stock is closer to a short-term buy.”

[email protected] Sang-hyeok Lim Reporter