[Click eStock] "Krafton Strengthens In-House Publishing Capabilities... Target Price 350,000 Won"

KB Securities Report

[Asia Economy Reporter Minji Lee] KB Securities on the 2nd issued a buy rating and a target price of 350,000 KRW for Krafton, based on the expectation of improved profitability through strengthened publishing capabilities.

The investment point for Krafton is that the Battlegrounds IP continues to enjoy long-term popularity. Since Battlegrounds switched to F2O (Free to Play) on January 12, the lower entry barrier is expected to increase the number of users and ARPU (Average Revenue Per User). Additionally, new releases such as Battlegrounds: New State and The Callisto Protocol, utilizing its own IP, are revitalizing interest in the IP and extending its lifecycle.

Strengthening of in-house publishing capabilities is also anticipated. Researcher Dongryun Lee of KB Securities stated, “While the existing revenue sources were mainly technology service fees and royalties, the fact that publishing capabilities are being strengthened starting with New State is positive,” adding, “Although operating profit margin is expected to decrease from 33.9% to the 30% range by next year due to increased related sales, the absolute scale of profit will grow.” Additionally, acquisitions of developers such as Unknown Worlds and enhancement of production capabilities through external IP contracts are also positive factors.

KB Securities presented operating profit estimates for Krafton this year and next year that are 16% and 21% lower than market estimates, respectively. This reflects the slowdown in growth in Q4 last year and increased costs such as labor and marketing expenses. Researcher Dongryun Lee explained, “This is because we reflected the slowdown in Q4 last year and the increase in labor and marketing costs.” However, the compound annual growth rate of revenue is expected to be 15.2% through next year, significantly exceeding the overall game industry growth rate of 7.2%.

For stock price appreciation, discovering new growth drivers is essential since Battlegrounds IP accounts for a high proportion of revenue. The risk of Chinese government regulations on the gaming industry should also be kept in mind. Researcher Dongryun Lee said, “There are concerns about increased marketing expenses as publishing expands in the future,” and added, “Although the lock-up period is one year from the listing date and locked shares account for 20.3% of total shares, these shares mainly belong to major shareholders including the largest shareholder, so the overhang issue is limited.”

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