Korea Investment & Securities Co. said on the 30th that uncertainty has eased for Krafton(259960) with a one-off settlement payment, while solid sales growth in the PC division and continued success of new releases are ongoing. It maintained a Buy rating and a target price of 400,000 won.
Jeong Ho-yoon of Korea Investment & Securities Co. said, "Krafton's second-quarter sales on a consolidation basis rose 94.9% on-year to 1.29 trillion won, and operating profit increased 67.0% to 410.9 billion won, slightly beating the securities community consensus (operating profit of 375 billion won)."
The main driver of earnings growth was the sharp sales increase in the PC business division. Second-quarter PC sales were 560.4 billion won, up 155.1% on-year and 54.0% on-quarter. Helped by collaboration events for the key IP "Battlegrounds (PUBG) PC," sales rose more than 70%, and "Subnautica 2" sold more than 5 million copies, contributing to strong results.
Mobile division sales were 450.9 billion won, up 5.5% on-year. Key mobile lineups such as PUBG Global, Peacekeeper Elite, and BGMI maintained steady growth. However, due to the inclusion of ADK, labor and fee expenses increased, pushing total operating expenses to 879.3 billion won, up 111.4% on-year.
The lawsuit with Unknown Worlds' management, which had been cited as a drag, has also been wrapped up. Krafton completed a settlement on July 1 for a lawsuit over up to $250 million in earn-out payments.
Jeong said, "The market initially expected expenses of around 150 billion won to be reflected in non-operating profit and loss in the second quarter, but the actual expenses are estimated to have exceeded that," adding, "While the expense recognition will lower this year's net profit estimate, it is positive that the uncertainty that had weighed on the market has completely disappeared."
Jeong said, "The PUBG IP continues to grow above market expectations, and Subnautica 2 has revalidated its capabilities in new game development and box-office performance," adding, "Given that the current valuation burden is not significant, we recommend gradually taking a buying approach."