The author is an analyst at KB Securities. He can be reached at drlee@kbfg.com. — Ed.
Hold long, target price drops 7.6% to 120,000 KRW
We maintain BUY on Pearl Abyss but lower our TP by 7.6% to 120,000 KRW. Our DCF-based TP (7.81% WACC; 2.0% TGR) implies 33.3x 2022E P/E. We are revising OP 2022E down by 25.5% to reflect the delayed launches of Black Desert Mobile (China) and Crimson Desert, but OP 2023E remains unchanged. Our main investment points, which include a series of major game releases in 2022 and promising new ventures (i.e. the metaverse), still stand. That said, we are concerned that the potential success of Black Desert Mobile (China) and Crimson Desert is reflected in market consensus and the company’s downward trajectory of profitability.
4Q21 results beat consensus; OP would become negative if unique items were taken into account
4Q21 Revenue/OP was KRW 118.0 billion (+22.4% QoQ, +11.7% YoY)/KRW 25.7 billion (+151, 6 over one quarter, +28.8% over one year), above the market consensus of 6.7%/30.6%. Black Desert and Eve IP revenues were down 6% and 2% respectively quarter-on-quarter. Pearl Abyss Fixed asset valuations/disposal gains of KRW 30.0 billion catapulted profits; excluding point elements, OP would become negative. For 1Q22, we expect Pearl Abyss to report an operating loss of KRW 0.8 billion due to lower revenue from existing games amid a lull in new game releases.
High expectations for new titles, metaverse
Black Desert Mobile is expected to launch in China in April after its CBT in March. Expectations are high, as the title has been selected as the most anticipated game for 2022 by popular Chinese game portal 1717. We estimate the average. daily revenue of KRW 3.0 billion immediately after launch and KRW 2.2 billion in 2022 (KRW 114.3 billion annual royalty revenue). Crimson Desert should be released in 4Q22. We expect 3.5 million copies sold in 2022, with 2022E/2023E revenue (including item sales) of KRW 199.0 billion/KRW 285.6 billion. Additionally, we expect more new titles to launch this year, including a Black Clover IP (3Q22) and Black Desert PC in China (TBD). When it comes to NFTs and the metaverse, we see significant potential for open-world MMO games (i.e. IP-based Eve games, DokeV).