Wait for upcoming major titles. 4Q17 review: Consensus miss; Declining Lineage M revenue, higher marketing spend. Reaffirm Buy and TP of W640,000

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1 ( KS) Wait for upcoming major titles Game Results Comment February 8, 2018 (Maintain) Buy Target Price (12M, W) 640,000 Share Price (02/07/18, W) 409,000 Expected Return 56% OP (17P, Wbn) 585 Consensus OP (17F, Wbn) 606 EPS Growth (17P, %) 61.7 Market EPS Growth (17F, %) 45.3 P/E (17P, x) 22.3 Market P/E (17F, x) 9.8 KOSPI 2, Market Cap (Wbn) 8,973 Shares Outstanding (mn) 22 Free Float (%) 84.7 Foreign Ownership (%) 46.3 Beta (12M) Week Low 263, Week High 488,000 (%) 1M 6M 12M Absolute Relative NCSOFT KOSPI Q17 review: Consensus miss; Declining Lineage M revenue, higher marketing spend reported 4Q17 earnings results that missed consensus expectations. Revenue: Revenue from games related to Lineage intellectual property (IP) was weaker than expected. We estimate domestic daily average revenue for Lineage M fell to W3.6bn in 4Q17 from W6.4bn in 3Q17 (the period following its initial release on June 21, 2017). However, the mobile title remained the top-grossing game for both Android and ios, which we attribute to the positive effects of new class and castle siege updates in November. Revenue from PC titles Lineage and Lineage II slightly contracted QoQ. On the other hand, revenue from PC titles Aion, Blade & Soul, and Guild Wars 2 were in line. Aion was boosted by the conversion from monthly subscriptions to a microtransaction model, while Guild Wars 2 was supported by sales of the second expansion pack. Expenses: Labor expenses, including special incentives related to Lineage M, were broadly in line with our projection. The biggest surprise was marketing spend, which jumped 10% QoQ and 69% YoY, despite the absence of any new major titles. We believe this suggests the company spent as much on promoting Lineage M s massive updates as it typically does on promoting new titles. 2018: Lineage M stabilization, easing expenses in 1H; New title effects in 2H has three big titles coming out this year. This is more than in previous cycles, as the company typically releases one new game every three years. We believe new title effects will be backloaded in 2H18. 1H18: We expect Lineage M revenue to stabilize and expense pressures to ease. We believe Lineage M s traffic and revenue patterns have steadied following the castle siege content update in November Our daily average revenue forecast for 2018 is around W3bn. Looking ahead, we see a number of factors that could extend the title s longevity, including content updates, introduction of player-to-player trading, and overseas releases. Meanwhile, we expect OP margin to remain at the 30% level in 1H18, backed by a slower pace of hiring, the removal of incentives, and reduced marketing spend. We also see benefits from a low base of comparison, as operating profit was only W68bn in 1H17. 2H18: Upcoming major mobile MMORPGs Blade & Soul II (expected in late 1H18), Aion Tempest, and Lineage II M (both expected in 2H18) should have a positive impact on earnings. This year s new titles are starkly different from the company s most recent release, Lineage M, in terms of target audience, worldview, and graphics, and, in our view, are more inclusive of overseas markets. Reaffirm Buy and TP of W640,000 We reaffirm our Buy call and target price of W640,000 on. The company has a relatively high ROE and low P/E compared to sector peers. We see little reason for concern in terms of profit and valuation in 1H18 and see potential for earnings growth and a re-rating in 2H18, driven by new releases. Mirae Asset Daewoo Co., Ltd. [Internet/Game/Advertising] Jee-hyun Moon jeehyun.moon@miraeasset.com FY (Dec.) 12/14 12/15 12/16 12/17P 12/18F 12/19F Revenue (Wbn) ,758 2,491 2,559 OP (Wbn) ,035 OP Margin (%) NP (Wbn) EPS (W) 10,486 7,542 12,416 20,081 33,216 34,470 ROE (%) P/E (x) P/B (x) Dividend Yield (%) Note: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests Source: Company data, Mirae Asset Daewoo Research estimates

2 Earnings review and forecasts Table 1. 4Q17 review 4Q16 3Q17 4Q17P Growth (Wbn, %) Preliminary Mirae Asset Daewoo Consensus YoY QoQ Revenue Operating profit OP margin (%) Net profit Note: All figures are based on consolidated K-IFRS. Source: Company data, FnGuide, Mirae Asset Daewoo Research estimates Table 2. Quarterly and annual earnings trends (Wbn, %) 1Q17 2Q17 3Q17 4Q17P 1Q18F 2Q18F 3Q18F 4Q18F P 2018F Revenue ,759 2,491 Lineage Lineage II Aion Blade & Soul Guild Wars Mobile games ,758 Other Royalties Operating profit OP margin Net profit NP margin YoY Revenue Lineage Lineage II Aion Blade & Soul Guild Wars Mobile 51, , , , , Other Royalties Operating profit Net profit Notes: All figures are based on consolidated K-IFRS; revenue from Lineage M, which was released on June 21, 2017, is included in mobile game revenue; Lineage M s daily average revenue is estimated at W3bn in 2018; new releases, including Blade & Soul II, are reflected in mobile game revenue; royalties from external developers games based on s IP, including Netmarble Games Lineage II: Revolution, are included in royalty revenue; net profit is attributable to controlling and non-controlling interests Source: Company data, Mirae Asset Daewoo Research estimates Table 3. Earnings forecast revisions Previous Revised % chg. 18F 19F 18F 19F 18F 19F Revenue 2,616 2,631 2,491 2, Operating profit , Net profit EPS (W) 32,975 33,482 33,216 34, OP margin NP margin Notes: All figures are based on consolidated K-IFRS; EPS is based on net profit attributable to controlling interests. Source: Mirae Asset Daewoo Research estimates Notes (Wbn, W, %) - Revised down mobile game revenue estimates factoring in new game release schedule - Revised down labor cost/commission fee estimates, and revised up marketing spend estimates Mirae Asset Daewoo Research 2

3 Valuation Figure month forward P/E: Target multiple of around 20x (W) 800, x 27.0x 600, , ,000 Blade & Soul, Guild Wars 2 launches Lineage M launch Blade & Soul II, Aion Tempest, Lineage II M launches expected 20.0x 15.5x 12.2x Source: Mirae Asset Daewoo Research Table 4. Earnings/valuation comparison of global peers: has higher ROE, lower P/E than global average (Wbn, x, %) Company Market cap Revenue Operating profit Net profit P/E EV/EBITDA P/B ROE 17F 18F 17F 18F 17F 18F 17F 18F 17F 18F 17F 18F 17F 18F 8,973 1,758 2, Netmarble Games 11,946 2,425 2, Com2uS 1, Activision Blizzard 57,116 7,689 8,039 2,623 2,929 1,895 2, Electronic Arts 40,932 5,566 5,611 1,406 1,782 1,111 1, Take-Two 14,619 2,204 3, Zynga 3, , Glu Mobile Ubisoft 9,887 2,233 2, Nintendo 63,226 10,233 13,288 1,532 2,888 1,242 2, Nexon 14,785 2,245 2, , Square Enix 5,321 2,583 2, DeNA 3,309 1,418 1, Gungho Online 2, GREE 1, Tencent 546,131 41,335 57,597 14,553 17,807 11,239 14, NetEase 44,272 9,195 11,769 2,239 2,506 2,229 2, Kingsoft 4, , Youzu Interactive 3, Changyou 1, Avg Note: Data for domestic companies are based on Mirae Asset Daewoo Research estimates; data for overseas companies are based on the consensus Source: Bloomberg, Mirae Asset Daewoo Research estimates Mirae Asset Daewoo Research 3

4 Figure 2. Upcoming major mobile MMORPG: Blade & Soul II (expected in late 1H18) to target Asian markets, including China Source: Company data, Mirae Asset Daewoo Research Figure 3. Upcoming major mobile MMORPG: Aion Tempest (expected in 2H18) to target Western markets Source: Company data, Mirae Asset Daewoo Research Figure 4. Upcoming major mobile MMORPG: Lineage II M (expected in 2H18) to be starkly different from Lineage M in terms of graphics Source: Company data, Mirae Asset Daewoo Research Mirae Asset Daewoo Research 4

5 ( KS/Buy/TP: W640,000) Comprehensive Income Statement (Summarized) Statement of Financial Condition (Summarized) (Wbn) 12/16 12/17F 12/18F 12/19F (Wbn) 12/16 12/17F 12/18F 12/19F Revenue 984 1,758 2,491 2,559 Current Assets 1,192 1,632 1,951 2,503 Cost of Sales Cash and Cash Equivalents Gross Profit 796 1,547 2,192 2,252 AR & Other Receivables SG&A Expenses ,194 1,217 Inventories Operating Profit (Adj) ,035 Other Current Assets ,164 1,390 Operating Profit ,035 Non-Current Assets 1,169 1,732 2,256 2,277 Non-Operating Profit Investments in Associates Net Financial Income Property, Plant and Equipment Net Gain from Inv in Associates Intangible Assets Pretax Profit ,008 1,045 Total Assets 2,361 3,364 4,207 4,780 Income Tax Current Liabilities Profit from Continuing Operations AP & Other Payables Profit from Discontinued Operations Short-Term Financial Liabilities Net Profit Other Current Liabilities Controlling Interests Non-Current Liabilities Non-Controlling Interests Long-Term Financial Liabilities Total Comprehensive Profit Other Non-Current Liabilities Controlling Interests Total Liabilities ,049 1,073 Non-Controlling Interests Controlling Interests 1,886 2,565 3,139 3,683 EBITDA ,029 1,066 Capital Stock FCF (Free Cash Flow) Capital Surplus EBITDA Margin (%) Retained Earnings 1,544 1,901 2,475 3,019 Operating Profit Margin (%) Non-Controlling Interests Net Profit Margin (%) Stockholders' Equity 1,896 2,579 3,158 3,707 Cash Flows (Summarized) Forecasts/Valuations (Summarized) (Wbn) 12/16 12/17F 12/18F 12/19F 12/16 12/17F 12/18F 12/19F Cash Flows from Op Activities P/E (x) Net Profit P/CF (x) Non-Cash Income and Expense P/B (x) Depreciation EV/EBITDA (x) Amortization EPS (W) 12,416 20,081 33,216 34,470 Others CFPS (W) 17,610 27,323 46,009 47,696 Chg in Working Capital BPS (W) 93, , , ,993 Chg in AR & Other Receivables DPS (W) 3,820 7,280 10,000 10,000 Chg in Inventories Payout ratio (%) Chg in AP & Other Payables Dividend Yield (%) Income Tax Paid Revenue Growth (%) Cash Flows from Inv Activities EBITDA Growth (%) Chg in PP&E Operating Profit Growth (%) Chg in Intangible Assets EPS Growth (%) Chg in Financial Assets Accounts Receivable Turnover (x) Others Inventory Turnover (x) 1, , , ,172.0 Cash Flows from Fin Activities Accounts Payable Turnover (x) Chg in Financial Liabilities ROA (%) Chg in Equity ROE (%) Dividends Paid ROIC (%) ,109.8 Others Liability to Equity Ratio (%) Increase (Decrease) in Cash Current Ratio (%) Beginning Balance Net Debt to Equity Ratio (%) Ending Balance Interest Coverage Ratio (x) Source: Company data, Mirae Asset Daewoo Research estimates Mirae Asset Daewoo Research 5

6 APPENDIX 1 Important Disclosures & Disclaimers 2-Year Rating and Target Price History Company (Code) Date Rating Target Price NCSOFT(036570) 09/26/2017 Buy 640,000 07/09/2017 Buy 600,000 05/01/2017 Buy 500,000 01/02/2017 No Coverage 03/11/2016 Buy 420,000 02/05/2016 Buy 400,000 (W) 800, , , ,000 NCSOFT 0 Feb 16 Feb 17 Feb 18 Stock Ratings Equity Ratings Distribution & Investment Banking Services Buy Trading Buy Hold Sell Equity Ratings Distribution 75.50% 16.00% 8.50% 0.00% Investment Banking Services 62.50% 33.33% 4.17% 0.00% * Based on recommendations in the last 12-months (as of December 31, 2017) Industry Ratings Buy : Relative performance of 20% or greater Overweight : Fundamentals are favorable or improving Trading Buy : Relative performance of 10% or greater, but with volatility Neutral : Fundamentals are steady without any material changes Hold : Relative performance of -10% and 10% Underweight : Fundamentals are unfavorable or worsening Sell : Relative performance of -10% Ratings and Target Price History (Share price ( ), Target price ( ), Not covered ( ), Buy ( ), Trading Buy ( ), Hold ( ), Sell ( )) * Our investment rating is a guide to the relative return of the stock versus the market over the next 12 months. * Although it is not part of the official ratings at Mirae Asset Daewoo Co., Ltd., we may call a trading opportunity in case there is a technical or short-term material development. * The target price was determined by the research analyst through valuation methods discussed in this report, in part based on the analyst s estimate of future earnings. * The achievement of the target price may be impeded by risks related to the subject securities and companies, as well as general market and economic conditions. Disclosures As of the publication date, Mirae Asset Daewoo Co., Ltd. and/or its affiliates do not have any special interest with the subject company and do not own 1% or more of the subject company's shares outstanding. Analyst Certification The research analysts who prepared this report (the Analysts ) are registered with the Korea Financial Investment Association and are subject to Korean securities regulations. They are neither registered as research analysts in any other jurisdiction nor subject to the laws or regulations thereof. Each Analyst responsible for the preparation of this report certifies that (i) all views expressed in this report accurately reflect the personal views of the Analyst about any and all of the issuers and securities named in this report and (ii) no part of the compensation of the Analyst was, is, or will be directly or indirectly related to the specific recommendations or views contained in this report. Mirae Asset Daewoo Co., Ltd. ( Mirae Asset Daewoo ) policy prohibits its Analysts and members of their households from owning securities of any company in the Analyst s area of coverage, and the Analysts do not serve as an officer, director or advisory board member of the subject companies. Except as otherwise specified herein, the Analysts have not received any compensation or any other benefits from the subject companies in the past 12 months and have not been promised the same in connection with this report. Like all employees of Mirae Asset Daewoo, the Analysts receive compensation that is determined by overall firm profitability, which includes revenues from, among other business units, the institutional equities, investment banking, proprietary trading and private client division. At the time of publication of this report, the Analysts do not know or have reason to know of any actual, material conflict of interest of the Analyst or Mirae Asset Daewoo except as otherwise stated herein. 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8 Mirae Asset Daewoo International Network Mirae Asset Daewoo Co., Ltd. (Seoul) Mirae Asset Securities (HK) Ltd. Mirae Asset Securities (UK) Ltd. Global Equity Sales Team Mirae Asset Center 1 Building 26 Eulji-ro 5-gil, Jung-gu, Seoul Korea Suites , 11th Floor Two International Finance Centre 8 Finance Street, Central Hong Kong 41st Floor, Tower Old Broad Street, London EC2N 1HQ United Kingdom China Tel: Tel: Tel: Mirae Asset Securities (USA) Inc. Mirae Asset Wealth Management (USA) Inc. Mirae Asset Wealth Management (Brazil) CCTVM 810 Seventh Avenue, 37th Floor New York, NY USA 555 S. Flower Street, Suite 4410, Los Angeles, California USA Rua Funchal, 418, 18th Floor, E-Tower Building Vila Olimpia Sao Paulo - SP Brasil Tel: Tel: Tel: PT. Mirae Asset Sekuritas Indonesia Mirae Asset Securities (Singapore) Pte. Ltd. Mirae Asset Securities (Vietnam) LLC Equity Tower Building Lt. 50 Sudirman Central Business District Jl. Jend. Sudirman, Kav Jakarta Selatan Battery Road, #11-01 Singapore Republic of Singapore 7F, Saigon Royal Building 91 Pasteur St. District 1, Ben Nghe Ward, Ho Chi Minh City Vietnam Indonesia Tel: Tel: Tel: (ext.110) Mirae Asset Securities Mongolia UTsK LLC Mirae Asset Investment Advisory (Beijing) Co., Ltd Beijing Representative Office #406, Blue Sky Tower, Peace Avenue 17 1 Khoroo, Sukhbaatar District Ulaanbaatar Mongolia 2401B, 24th Floor, East Tower, Twin Towers B12 Jianguomenwai Avenue, Chaoyang District Beijing China 2401A, 24th Floor, East Tower, Twin Towers B12 Jianguomenwai Avenue, Chaoyang District Beijing China Tel: Tel: Tel: (ext. 3300) Shanghai Representative Office 38T31, 38F, Shanghai World Financial Center 100 Century Avenue, Pudong New Area Shanghai China Ho Chi Minh Representative Office 7F, Saigon Royal Building 91 Pasteur St. District 1, Ben Nghe Ward, Ho Chi Minh City Vietnam Tel: Tel: Mirae Asset Daewoo Research 8