[Click eStock] "Kakao, Earnings Improvement from Next Year... Target Price Down"
On the 12th, Samsung Securities lowered the target price for Kakao from 79,000 KRW to 64,000 KRW, while maintaining a 'Buy' rating.
Kakao's second-quarter revenue is expected to increase by 16.9% year-on-year due to the inclusion effect of SM, but excluding the consolidation effect, growth is projected to remain in the single digits. This is because the growth rate of TalkBiz advertising revenue is only 2%, and game and media revenues are expected to decline.
Operating profit also faces downside risks considering one-time costs related to the SM acquisition. Samsung Securities revised down Kakao's second-quarter operating profit estimate from 125.6 billion KRW to 109.1 billion KRW, a 13.2% decrease. This figure is 19.7% below the market consensus.
Performance improvement in the second half of the year hinges on the recovery of the advertising market and the results of the Talk restructuring. Although new services in healthcare and Brain are scheduled to launch, initial cost increases are expected to delay their contribution to profits.
Meanwhile, Kakao has begun restructuring centered on Entertainment and Enterprise. There is also a possibility that restructuring will expand to other business units such as Kakao Style, which is experiencing increasing losses. While voluntary retirement and personnel reallocation within business units are expected to slow overall headcount growth from the second half, the effect of reduced labor costs due to retirement benefit payments is expected to become visible after the fourth quarter.
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Oh Dong-hwan, a researcher at Samsung Securities, said, "We expect performance improvements from next year due to fixed cost reductions following this year's intensive restructuring. The full-scale performance improvement is anticipated from 2024, when the results of the Talk restructuring and restructuring efforts become visible, and the second half of this year will be a period to prepare for this."
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