NCSoft Corp: -34.7%
Missing analyst expectations and management guidance can sometimes have an adverse impact on the share price, especially if the business is seasonal. This may explain NCSoft Corp’s underperformance of 34.7% losses compared to the benchmark Kospi’s 7.4% returns. However, we think NCSoft’s business fundamentals and prospects are well above its current trading price of KRW302,500 ($313.83). Based on our updated in-house valuations, we believe the intrinsic value of the company is around 45% above its current share price.
To recap, NCSoft is an online games developer and publisher and has created popular franchises such as the Lineage, Aion and Guild Wars series. The company has many successful intellectual properties (IPs), with multiple flagship IPs diversified across various product lines and platforms. As the company has a diverse game portfolio, NCSoft’s business model has sustainable longevity, which is further supported by the extensions of growth cycles through IP utilisation across various platforms. The company’s competitive edge stems from its technological capabilities, as it is a global leader in AI R&D, mainly focusing on enhancing AI capabilities in gaming, culture and society and setting cultural standards for AI use.
The company has a fluctuating or seasonal business, where results are likely to be strong if new titles are published for the financial period concerned, and the converse if there are delays in publishing new titles. NCSoft’s current business strategy is to focus on overseas expansion by expanding its presence in the global market through global IPs and new games designed for the global market. Throne and Liberty, which is part of the company’s line-up of new games, is expected to diversify its revenue sources geographically. Also, as the largest mobile game maker in South Korea, the company is developing more cross-platform games such as Project G, which is expected to aid in the company’s strategy of expanding globally. For its long-term growth, NCSoft’s venture into games based on non-fungible tokens (NFT) is one of the initiatives taken by the company.
For the company’s most recent 1QFY2023 ended March, revenue, operating profit and net income fell 39%, 67% and 32% respectively y-o-y. A yearly comparison might be more reflective of the true business performance and for FY2022, sales, operating profits and net income were all up y-o-y by 11%, 49% and 10% respectively. The company has a current ratio of 5.2 times, an interest coverage ratio of almost 60 times and has a net-cash position, indicating that liquidity and solvency are not concerns for the company. NCSoft Corp trades at a 19%, 18% and 44% discount to global peers for its P/E, EV/Ebitda and P/B ratios respectively, denoting that is a relatively cheap pick-up compared to peers.
The stock has 28 “buy” calls, three “hold” calls and three “sell” calls, with a consensus target price of over 50% above its current trading price.
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Data for Charts & Tables were sourced from Bloomberg; Stock returns include capital adjustments and dividends, and excludes currency exchange fluctuations.
