IBK Securities on the 1st projected that earnings growth at NCSOFT will enter a full-fledged phase, reflecting the success of its games and the potential expansion of its artificial intelligence (AI) business. It kept its investment rating at "Buy (BUY)" and raised its target price to 390,000 won from 280,000 won.
Lee Seung-hoon, an analyst at IBK Securities, said in a report that day that the performance of "Lineage Classic" and expectations for "AION2" are now being fully reflected in results, adding that the consolidation of strategically acquired mobile casual game studios is further boosting both scale and profitability to explosive growth.
NCSOFT posted 557.4 billion won in operating revenue and 113.3 billion won in operating profit on a consolidation basis in the first quarter of this year. Analysts said the figures were an earnings surprise that far exceeded market expectations.
However, operating expenses also rose 25.1% from a year earlier. The analyst explained that this reflected companywide incentives booked in advance due to the success of "Lineage Classic" and stock-based compensation expenses to lock in key talent.
The strategy to expand the AI business is also drawing attention. NCSOFT in Feb. last year carved out its AI unit through a physical spin-off to launch an independent subsidiary, "NC AI." NC AI operates "VARCO," a Multimodal AI platform that supports digital human creation based on game graphics, high-resolution sound generation, real-time multilingual translation, and digital fashion design.
It is also accelerating the expansion of its Generative AI business aimed at the corporations market, including manufacturing, finance, and defense. The company recently unveiled an industry-specialized foundation model with 100 billion parameters and said it is strengthening competitiveness in enterprise-customized sovereign AI platforms by applying technology that reduces memory usage by up to 83% during computation.
Regarding the target price calculation, IBK Securities said it applied 17 times, the two-year average of the 12-month forward price-earnings ratio (FW PER), to the projected 2027 earnings per share (EPS), when revenue from new titles scheduled for release and mobile casual games acquired through mergers and acquisitions (M&A) will be fully reflected.