Krafton Faces Downgraded Price Targets from Securities Firms... Shares Down 58% This Year

61.5% ↓ Compared to Last Year's IPO Price
3Q Earnings Expected Below Expectations
Value Decline Amid Interest Rate Hikes
Marketing Costs Expected to Increase in H2
Indian Government Regulations... China Sales Slowdown

[Asia Economy Reporter Hwang Yoon-joo] The securities industry has collectively downgraded the target price of Krafton due to concerns over aggressive interest rate hikes and a slowdown in PUBG Mobile sales.

On the 11th, Daishin Securities stated that "due to the downward revision of earnings estimates for the next 12 months, the target price for Krafton has been lowered by about 12% to 290,000 KRW." However, the investment opinion was maintained as 'Buy.' Previously, NH Investment & Securities lowered the target price from 350,000 KRW to 290,000 KRW, and Cape Investment & Securities also reduced it to 300,000 KRW.

The change in Krafton's stock price is literally a 'shock.' Based on the previous trading day's closing price (191,500 KRW), the 200,000 KRW level has been broken. It has fallen 58.37% from the beginning of the year (460,000 KRW) and plunged 61.5% from the IPO price (498,000 KRW). It peaked at 567,000 KRW on November 17 last year and has been continuously declining since.

The biggest factor behind the stock price slump is the sharp interest rate hikes by the U.S. Federal Reserve (Fed). Since the Fed began raising the base rate in earnest in March, it has implemented 'Giant Steps' (raising the base rate by 0.75 percentage points at once) in May, July, and September. There is also a possibility of another Giant Step in November. During periods of rising interest rates, the discount rate for growth stocks increases, making stock price rebounds difficult.

Concerns over the slowdown in PUBG Mobile sales also dragged down the stock price. Earlier, the Indian government blocked Battlegrounds Mobile India (BGMI) from local app markets. As a result, sales in India are expected to be absent for the time being. As of the first half of the year, BGMI accounted for about 8% of sales.

On the other hand, marketing expenses are expected to increase compared to the previous quarter. This is due to marketing activities related to content updates for existing games and participation in Gamescom for new titles. Marketing expenses are also expected to rise significantly in the fourth quarter when new titles are released.

Lee Ji-eun, a researcher at Daishin Securities, analyzed, "Mobile sales are expected to decrease by 8% compared to the previous quarter," adding, "The shrinking Chinese mobile game market likely weakened the seasonal effect."

Accordingly, the third-quarter earnings estimates compiled by FnGuide have sharply declined over the past six months. Sales estimates have been lowered from 582.7 billion KRW (six months ago), 529.7 billion KRW (three months ago), 487.5 billion KRW (one month ago), to 470 billion KRW (as of yesterday). Operating profit also dropped from 249.4 billion KRW (six months ago) to 167.2 billion KRW (as of yesterday).

Currently, the securities industry expects Krafton's third-quarter earnings to fall short of consensus. According to FnGuide, the sales consensus is 470 billion KRW, down 9.95% year-over-year. Operating profit and net income are estimated at 167.2 billion KRW and 153.7 billion KRW, respectively, representing decreases of 14.38% and 13.81%.

NH Investment & Securities researcher Ahn Jae-min also analyzed, "Although the third quarter is a peak season, the growth in mobile game sales is inevitably slowing due to increased offline activities," adding, "Poor performance is expected due to the suspension of services in India and the slowdown in Chinese sales."

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