[Click e-Stock] "Kakao, Expanding New Business Investments... Target Price Down 11%"

Samsung Securities Report
Focus on Securing Long-Term Revenue Models Amid Prolonged Regulatory Issues

[Asia Economy Reporter Minji Lee] Samsung Securities maintained a buy rating on Kakao on the 10th and set a target price of 160,000 KRW, down 11% from the previous target. This is based on the judgment that it will be difficult to expect short-term profit growth as the company is focusing on securing a long-term profit model.

In the fourth quarter of last year, the company's sales are expected to reach 1.6921 trillion KRW, a 37% increase compared to the same period last year. Due to a decrease in Odin sales and a slowdown in growth across business divisions, the annual sales growth rate is expected to decline from 58% in the third quarter. Operating profit is forecasted to reach 177.4 billion KRW, an 18.5% increase from a year earlier, but 15.6% below market expectations. Donghwan Oh, a researcher at Samsung Securities, said, "The consolidation of Ryanheart Studio of Kakao Games is a factor for operating profit growth, but this is offset by the payment of bonuses to Ventures employees due to partial sale of Dunamu shares and a temporary increase in labor costs related to employee stock options following Kakao Pay's listing."

Government regulations focused on Kakao's online platform last year are expected to continue this year. Following the Fair Trade Commission's announcement of online platform review guidelines and the ruling party's presidential candidate expressing a stance to strengthen regulations on online platforms, it is expected that investment sentiment toward Kakao will not easily recover at least until the presidential election. Researcher Oh said, "The company is increasing overseas new business investments to avoid domestic regulatory risks, so the possibility of significant profit growth is low until regulatory issues are resolved."

This year, the listings of major subsidiaries such as Piccoma, Mobility, and Entertainment are expected to be promoted. While the revaluation of major business units' corporate value through listings is positive, resolving investor dispersion due to subsidiary listings remains a challenge. Researcher Oh explained, "Kakao will maintain the parent company's investment appeal through discovering new business models by combining advertising and commerce and continuous business expansion."

He added, "Reflecting the expansion of new businesses, this year's operating profit estimates are revised downward by about 12% compared to before, and the target price for Kakao is also adjusted downward reflecting the decline in corporate value of major subsidiaries such as Kakao Pay and Kakao Bank and the valuation decline of global competitor groups."

However, blockchain and metaverse are predicted to become new growth engines for the company. The company plans to develop metaverse and AI-based new businesses centered on the newly established Future Initiative Center and oversee global blockchain business at Crust. Since the value of new businesses has not been significantly reflected in the stock price, the realization of new businesses is expected to be the key to a stock price rebound this year.

This content was produced with the assistance of AI translation services.