The writer is an analyst of NH Funding & Securities. He will be reached at email@example.com. — Ed.
The 12 months 2022 has been robust for Korean Web and recreation corporations. Nevertheless, we forecast that these shares will try a rebound going ahead. Anticipating a return of extra affordable consumption patterns (centered on on-line) subsequent 12 months, we anticipate that home Web and recreation shares will exhibit a gradual earnings and share value restoration in 2023. Via the steep value correction, the portion of stakes owned by institutional traders and foreigners has declined sharply. Provided that their present valuations are at 10-year lows, we imagine that Web and recreation shares will rebound simply upon the emergence of even minor positives. Furthermore, assuming an financial restoration in 2H23, we anticipate Web companies to be on the forefront of the expansion inventory rebound.
Taking a look at recreation corporations, after the drought of latest titles in 1H23, new recreation momentum ought to start to get better from 2H23. As well as, home recreation corporations’ advance into the console recreation market deserves shut consideration.
Weighing the entire above-mentioned elements, we keep a Constructive ranking on the Web and recreation sector in 2023. We advocate Kakao & NCSOFT and Neowiz as prime picks for the Web and recreation sectors, respectively.
I. Web: Wanting in the direction of subsequent leveling-up
In 2022, world Web platform shares, together with NAVER and Kakao, have plunged sharply, ending the 10-year-long rally based mostly on excessive development momentum and low rates of interest.
Nevertheless, NAVER and Kakao stay as dominant platforms in Korea. With the economic system anticipated to get better from 2H23, the rate of interest upcycle ought to come to an finish by end-1H23. When this occurs, development shares (eg, Web) needs to be the primary to maneuver.
II. Turnaround anticipated in 2023
Regardless of their excessive earnings sensitivity to exterior environments, we forecast that NAVER and Kakao’s share costs and earnings will step by step get better from 2023. In our view, the previous two-year-long downcycle for earnings development, share costs, and valuations ought to come to an finish, and a restoration cycle ought to set in step by step.
1) Main cash-cow companies (advert, commerce) ought to regain development momentum; 2) new companies (mobility, fintech, webtoon, content material) ought to ship sturdy gross sales development and OP turnarounds; and three) labor and advertising expense improve ought to sluggish.
III. Recreation: To flee darkish tunnel in 1H23
Modifications are to be seen at recreation corporations subsequent 12 months. Now calm following pleasure over P2E video games, sector performs are taking a wait-and-see strategy. Nevertheless, having agonized over the change in methods between P2E video games and current genres, recreation companies have been sluggish in getting ready for brand spanking new titles launches, which is to end in an absence of latest recreation momentum in 1H23. However, quite a few new titles are set to hit the market in 2H23. Having witnessed a development slowdown within the home recreation market, recreation companies are actually trying to the worldwide console phase.
IV. High picks
We keep our Constructive stance on the Web/recreation sector. Whereas the offline market has expanded in 2022 with Covid-19 getting into the endemic part, Web sector share costs and earnings ought to rebound step by step in 2023. After an eventful 2022, Kakao is to aim a restoration subsequent 12 months. We view the agency as being in an advantageous place over friends when it comes to earnings development. NCSOFT and Neowiz are to enter the worldwide console market with new titles TL and Lies of P, respectively. Upon success, their share costs are forecast to degree up.