-2Q16 operating profit estimated at W72.7bn (+8.4% YoY), missing consensus by 6% ¨

-Momentum from release of new mobile games based on Lineage IP from July

-Retain BUY for a target price of W320,000

2Q16 operating profit estimated at W72.7bn (+8.4% YoY), missing consensus by 6%

We expect NCsoft to report 2Q16 sales of W225.3bn (+3.6% YoY) and operating profit of W72.7bn (+8.4% YoY). Lineage sales are estimated at W85.6bn (+8.6% QoQ) backed by the dragon’s treasure chest event (May 25 - June 22). 

Sales of Blade & Soul are forecast to drop 31.1% QoQ to W37.2bn. Labor costs are estimated to decrease by W13.3bn from the previous quarter. Operating profit is likely to miss the consensus (W77.1bn) by 6%.

Momentum from release of new mobile games based on Lineage IP from July

The results of closed beta test (June 17–24) was announced for the new mobile game Lineage 2: The Blood Pledge, which is being developed by Snail Games based on the Lineage IP (intellectual property). 

During the test period, the number of concurrent users hit 11,996. ARPU (average revenue per user) for seven days was 32.06 yuan (W5,585). The open beta test is scheduled in July.

Netmarble is set to release the much-anticipated mobile game Lineage 2: Dawn of Aden in August-September. We expect launch of in-house games including Lineage RK in 3Q, Lineage of Legend and Lineage on Mobile in 4Q.

Lineage has a solid ground in the domestic market and has a strong chance of success. Momentum should gather with the launch of new mobile games based on the Lineage IP from July. The share price is expected to break above the narrow trading range.

Retain BUY for a target price of W320,000

We retain our BUY rating on NCsoft for a target price of W320,000. We applied a target PER of 24x to 12-month forward EPS of W13,419. The current share price is equivalent to 2016F PER of 20x, lower than the past four-year average (22x). 

Term-end dividend yield is estimated at 1.7%. Additional downside seems limited. Anticipation is high for the launch of two mobile Lineage 2 games in 3Q16. We recommend betting on expectations for new games before their release.


Source: Shinhan Investment  www.shinhaninvest.com/eng/