(130960 KQ/Buy) Media Issue Comment December 16, 2016 Mirae Asset Daewoo Co., Ltd. [Telecom Service / Media] Jee-hyun Moon +822-768-3615 jeehyun.moon@miraeasset.c om Nu-ri Ha +822-768-4130 nuri.ha@miraeasset.com Strong content momentum from Lineage II and Goblin Successful debut of Netmarble Games Lineage II: Revolution and Studio Dragon s Goblin: The Lonely and Great God Positive in the short term to s equity-method gains and broadcasting unit earnings Two companies IPOs, planned for 2017, likely to raise s corporate value Maintain Buy on with TP of W110,000 Success of new content to provide a boost to earnings and share price continues to release strong content in December, particularly Lineage II: Revolution, a mobile game launched by Netmarble Games on Dec. 14 th, and Goblin: The Lonely and Great God, a drama produced by Studio Dragon that began airing on Dec. 2 nd. Lineage II: Revolution: According to media reports, Lineage II generated record-high revenue of more than W7bn on the day of its release the highest-ever daily revenue achieved by a domestic mobile game. The title also currently tops Apple s ios games chart. Notably, Netmarble Games has expanded its number of game servers by 30 (previously 100), and plans to attract more users through promotions and software updates. Goblin: The Lonely and Great God: For this drama, the 15-second TV ad unit price stands at W13.8mn, a record-high for s broadcasting unit. The drama has topped the list of popular videos on NAVER tvcast and is currently airing on iflix (East Asian counterpart of Netflix). In addition to TV ad revenue, we expect digital ad and VOD revenue to expand. The success of these titles will provide a boost to s earnings over the short term, and could also point to improvement in corporate value over the medium and long term in light of Netmarble Games and Studio Dragon s plans to go public in 2017. The company currently has a 28% stake in Netmarble Games and a 91% stake in Studio Dragon. We reiterate our Buy call on with a target price of W110,000. Figure 1. Netmarble Games Lineage II: Revolution and Studio Dragon s Goblin: The Lonely and Great God providing content momentum to Source: Media reports, respective companies data, FY (Dec.) 12/13 12/14 12/15 12/16F 12/17F 12/18F Revenue (Wbn) 1,246 1,233 1,347 1,492 1,645 1,723 OP (Wbn) -9-13 53 46 85 96 OP Margin (%) -0.7-1.1 3.9 3.1 5.2 5.6 NP (Wbn) 5 225 54 63 99 107 EPS (W) 133 5,796 1,403 1,627 2,549 2,769 ROE (%) 0.4 16.4 3.6 4.0 6.0 6.2 P/E (x) 229.0 6.6 57.4 40.8 26.0 24.0 P/B (x) 1.0 1.0 2.0 1.6 1.5 1.4 Notes: All figures are based on consolidated K-IFRS; NP refers to profit attributable to controlling interests Source: Company data, estimates
Lineage II: Revolution: Positive to equity-method gains in the short term, medium/long-term opportunity for corporate value improvement Figure 2. Mobile game Lineage II: Revolution topped Apple s ios game charts by revenue Note: As of 4 p.m. on Dec. 15 Source: App Annie, Figure 3. Netmarble Games ownership structure: s ownership stake to grow in value upon IPO (planned for 1H17) Source:, Netmarble Games, 2
New drama: Short-term lift to broadcasting earnings, medium/longterm opportunity for corporate value improvement Figure 4. TV ad unit (15-sec.) price for Goblin: The Lonely and Great God stands at W13.8mn, the highest in s history Source: Company data, Figure 5. The drama has topped the list of popular videos on NAVER tvcast and is currently airing on iflix (East Asian counterpart of Netflix); Digital video ad revenue and IP sales expected Note: NAVER tvcast based on Dec. 7 to 14; iflix is a subscription-based VOD service Source: NAVER, iflix, Hype, Figure 6. Ownership structure of Studio Dragon, producer of Goblin: The Lonely and Great God: s ownership stake to grow in value upon IPO (planned for 2H17) Source: Company data, 3
Figure 7. s 12-month forward P/B band and share price: Recently rebounded to 1.5x after touching low of 1.3x (W) 100,000 Adj. price 2.2x 80,000 60,000 1.8x 1.5x 1.3x 40,000 0.8x 20,000 0 11 12 13 14 15 16 17 18 Source: Table 1. Domestic and global media content companies earnings forecast and valuation (Wbn, x, %) Company name Mar ket cap. Div. Revenue OP Net profit P/E P/B EV/EBITDA ROE yield 15 16F 17F 15 16F 17F 15 16F 17F 15 16F 17F 15 16F 17F 15 16F 17F 15 16F 16F (KR) 2,572 1,347 1,492 1,645 53 46 85 54 63 99 57.4 40.8 26.0 2.0 1.6 1.5 8.3 6.5 7.3 3.6 4.0 0.3 SBS 464 773 774 711 40-23 34 35-11 32 18.5-14.7 1.1 0.8 0.8 8.1 66.7 6.8 6.2-2.0 - J Contentree 438 350 379 374 31 35 48 11 19 25 56.0 23.4 17.3 9.5 5.9 4.4 18.2 13.1 10.0 15.0 28.5 - Showbox 344 141 154 159 14 17 17 12 13 13 39.6 26.9 26.9 4.0 2.7 2.5 4.0 9.0 8.4 10.6 10.6 0.9 NEW 306 77 114 98-1 5 6 5 4 7 62.7 74.2 45.6 2.2 2.3 2.2-46.6 41.0 3.6 3.1 - KTH 226 161 192 218 5 6 9 7 3 5 44.4 86.6 41.3 1.6 1.1 1.1 8.0 4.2 3.4 3.7 1.3 - SBS Content Hub 179 215 246 253 12 13 14 7 6 6 49.5 28.7 27.9 2.1 1.1 1.1 14.9 3.7 3.3 4.2 3.9 1.8 Huayi Brothers Media (CH) 5,292 694 782 984 163 203 267 176 162 187 54.6 31.8 26.5 5.8 2.9 2.7 60.4 25.4 20.1 13.0 9.1 0.5 Zhejiang Huace Film & TV 3,529 476 587 739 91 120 162 86 107 142 62.1 32.5 24.8 5.5 2.9 2.8 60.7 28.6 21.3 10.3 9.8 0.3 Fuji Media Holdings (JP) 3,946 6,179 6,671 6,647 235 269 271 220 233 229 19.8 16.9 17.1 0.6 0.6 0.6 8.9 8.5 8.2 3.3 3.5 2.4 195,43 Walt Disney (US) 64,551 67,195 71,091 16,479 17,764 19,122 10,897 11,004 11,945 20.0 17.5 15.6 3.7 3.8 3.7 11.7 10.5 9.8 18.7 21.4 1.5 8 Time Warner 86,143 31,836 33,959 35,898 7,773 8,844 9,478 4,340 5,279 5,452 13.6 16.7 16.0 2.2 3.0 2.5 9.7 11.6 10.7 15.9 18.3 1.7 21C Fox 60,951 32,049 33,809 35,260 7,028 7,621 8,105 3,231 4,103 4,481 18.9 14.7 13.2 3.9 3.5 3.1 11.7 9.5 8.9 48.0 24.3 1.3 Netflix 62,522 7,676 10,297 12,898 346 402 907 139 349 673 408.5 182.1 98.9 22.0 21.8 18.3 133.1 91.9 52.5 6.0 8.6 - Viacom 16,432 14,491 14,950 15,278 2,931 3,316 3,413 1,669 1,783 1,878 7.9 10.0 9.5 4.9 2.9 2.4 8.8 8.3 8.1 53.0 32.4 - RTL Group (EU) 12,956 7,576 7,714 7,929 1,405 1,447 1,502 991 928 965 15.0 13.9 13.3 4.0 3.3 3.1 9.9 8.7 8.4 27.3 24.3 6.0 Average 26.5 19.2 17.0 3.8 2.9 2.6 22.7 13.9 11.9 17.8 14.9 1.7 Note: Korean companies are based on our estimates, others on Bloomberg consensus; Excluded outliers when calculating average Source: Respective companies data, Bloomberg, estimates Table 2. Domestic and global game companies earnings forecast and valuation: Note Netmarble Games 2017 IPO plans (Wbn, x, %) Company name Market cap. Div. Revenue OP Net profit P/E P/B EV/EBITDA ROE yield 15 16F 17F 15 16F 17F 15 16F 17F 15 15 16F 17F 15 16F 17F 15 16F 15 16F 15 NCSOFT (KR) 5,789 838 943 1,171 237 302 419 165 264 343 27.9 21.7 16.7 2.6 3.0 2.7 11.8 13.4 10.0 10.6 14.4 1.2 Com2uS 1,139 434 507 535 166 189 199 126 146 155 11.1 7.8 7.4 2.9 1.7 1.4 6.1 2.9 2.8 35.0 25.1 - NHN Ent. 937 645 851 930-54 30 41 164 64 46 6.3 14.5 19.6 0.8 0.6 0.6-2.8 2.2 13.4 4.4 - Activision Blizzard (US) 32,227 5,281 7,650 8,064 1,493 2,534 2,697 1,010 1,821 1,945 32.3 17.9 17.1 3.5 3.1 2.8 16.9 12.2 11.3 11.5 16.8 0.7 EA 28,741 5,084 5,780 6,098 1,039 1,725 1,947 1,337 1,354 1,526 19.3 21.8 19.3 5.9 6.2 4.8 13.5 13.5 12.3 31.9 26.8 - Zynga 2,937 866 866 983-165 42 73-138 25 75-253.6 45.7 1.4 1.5 1.4-29.0 16.1-6.6 1.2 - Nintendo (JP) 39,140 4,866 4,919 7,486 317 393 1,084 159 585 862 50.0 56.4 39.3 1.8 2.7 2.6 34.8 66.7 27.3 3.7 5.1 0.9 Nexon 7,043 1,780 1,878 1,931 583 444 696 516 289 558 15.5 23.8 13.1 2.3 1.8 1.6 9.0 12.2 8.4 15.4 6.6 0.7 DeNA 4,631 1,386 1,552 1,769 191 281 409 109 196 259 20.4 23.2 17.5 1.9 2.2 1.9 6.9 9.4 7.0 10.0 9.4 0.8 Gungho Online 2,404 1,444 1,296 1,067 678 555 416 406 342 263 7.9 7.0 8.0 3.6 2.4 2.2 3.2 4.6 5.7 39.9 41.3 1.6 Netease (CH) 34,036 4,108 6,304 7,980 1,310 2,083 2,507 1,213 2,002 2,339 23.1 16.8 14.3 5.3 5.3 4.0 17.6 13.5 11.0 25.5 33.9 1.4 Average 18.2 21.1 17.2 2.9 2.8 2.4 10.6 11.3 8.7 17.3 16.8 0.7 Netmarble Plan for 1,073 225 168 14.2 Games IPO Note: Based on Bloomberg consensus; Excluded outliers when calculating average; Netmarble Games 1Q16-3Q16 cumulative revenue and OP: W1.004tr and W175.7bn, respectively Source: Respective companies data, Bloomberg, 4
APPENDIX 1 Important Disclosures & Disclaimers 2-Year Rating and Target Price History Company (Code) Date Rating Target Price (130960) 08/11/2015 Buy 110,000 07/26/2015 Buy 100,000 05/11/2015 Buy 80,000 03/29/2015 Buy 70,000 02/06/2015 Buy 51,000 11/26/2014 Buy 48,000 (W) 120,000 100,000 80,000 60,000 40,000 20,000 0 Dec 14 Dec 15 Dec 16 Stock Ratings Equity Ratings Distribution Buy Trading Buy 69.27% 17.07% 13.66% 0.00% * Based on recommendations in the last 12-months (as of September 30, 2016) 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 and regulations thereof. Opinions expressed in this publication about the subject securities and companies accurately reflect the personal views of the Analysts primarily responsible for 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. No part of the compensation of the Analysts was, is, or will be directly or indirectly related to the specific recommendations or views contained in this report but, like all employees of Mirae Asset Daewoo, the Analysts receive compensation that is impacted 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. Disclaimers This report is published by Mirae Asset Daewoo, a broker-dealer registered in the Republic of Korea and a member of the Korea Exchange. Information and opinions contained herein have been compiled from sources believed to be reliable and in good faith, but such information has not been independently verified and Mirae Asset Daewoo makes no guarantee, representation or warranty, express or implied, as to the fairness, accuracy, completeness or correctness of the information and opinions contained herein or of any translation into English from the Korean language. If this report is an English translation of a report prepared in the Korean language, the original Korean language report may have been made available to investors in advance of this report. Mirae Asset Daewoo, its affiliates and their directors, officers, employees and agents do not accept any liability for any loss arising from the use hereof. This report is for general information purposes only and it is not and should not be construed as an offer or a solicitation of an offer to effect transactions in any securities or other financial instruments. The intended recipients of this report are sophisticated institutional investors who have substantial knowledge of the local business environment, its common practices, laws and accounting principles and no person whose receipt or use of this report would violate any laws and regulations or subject Mirae Asset Daewoo and its affiliates to registration or licensing requirements in any jurisdiction should receive or make any use hereof. Information and opinions contained herein are subject to change without notice and no part of this document may be copied or reproduced in any manner or form or redistributed or published, in whole or in part, without the prior written consent of Mirae Asset Daewoo. Mirae Asset Daewoo, its affiliates and their directors, officers, employees and agents may have long or short positions in any of the subject securities at any time and may make a Hold Sell 5
purchase or sale, or offer to make a purchase or sale, of any such securities or other financial instruments from time to time in the open market or otherwise, in each case either as principals or agents. Mirae Asset Daewoo and its affiliates may have had, or may be expecting to enter into, business relationships with the subject companies to provide investment banking, market-making or other financial services as are permitted under applicable laws and regulations. The price and value of the investments referred to in this report and the income from them may go down as well as up, and investors may realize losses on any investments. Past performance is not a guide to future performance. Future returns are not guaranteed, and a loss of original capital may occur. Distribution United Kingdom: This report is being distributed by Daewoo Securities (Europe) Ltd. in the United Kingdom only to (i) investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the Order ), and (ii) high net worth companies and other persons to whom it may lawfully be communicated, falling within Article 49(2)(A) to (E) of the Order (all such persons together being referred to as Relevant Persons ). This report is directed only at Relevant Persons. Any person who is not a Relevant Person should not act or rely on this report or any of its contents. United States: This report is distributed in the U.S. by Daewoo Securities (America) Inc., a member of FINRA/SIPC, and is only intended for major institutional investors as defined in Rule 15a-6(b)(4) under the U.S. Securities Exchange Act of 1934. All U.S. persons that receive this document by their acceptance thereof represent and warrant that they are a major institutional investor and have not received this report under any express or implied understanding that they will direct commission income to Mirae Asset Daewoo or its affiliates. Any U.S. recipient of this document wishing to effect a transaction in any securities discussed herein should contact and place orders with Daewoo Securities (America) Inc., which accepts responsibility for the contents of this report in the U.S. The securities described in this report may not have been registered under the U.S. Securities Act of 1933, as amended, and, in such case, may not be offered or sold in the U.S. or to U.S. persons absent registration or an applicable exemption from the registration requirements. Hong Kong: This document has been approved for distribution in Hong Kong by Daewoo Securities (Hong Kong) Ltd., which is regulated by the Hong Kong Securities and Futures Commission. The contents of this report have not been reviewed by any regulatory authority in Hong Kong. This report is for distribution only to professional investors within the meaning of Part I of Schedule 1 to the Securities and Futures Ordinance of Hong Kong (Cap. 571, Laws of Hong Kong) and any rules made thereunder and may not be redistributed in whole or in part in Hong Kong to any person. All Other Jurisdictions: Customers in all other countries who wish to effect a transaction in any securities referenced in this report should contact Mirae Asset Daewoo or its affiliates only if distribution to or use by such customer of this report would not violate applicable laws and regulations and not subject Mirae Asset Daewoo and its affiliates to any registration or licensing requirement within such jurisdiction. Mirae Asset Daewoo International Network Mirae Asset Daewoo Co., Ltd. (Seoul) Daewoo Securities (Hong Kong) Ltd. Daewoo Securities (America) Inc. Head Office 34-3 Yeouido-dong, Yeongdeungpo-gu Seoul 150-716 Korea Two International Finance Centre Suites 2005-2012 8 Finance Street, Central Hong Kong, China 810 Seventh Avenue 37th Floor New York, NY 10019 United States Tel: 82-2-768-3026 Tel: 85-2-2845-6332 Tel: 1-212-407-1000 Daewoo Securities (Europe) Ltd. Daewoo Securities (Singapore) Pte., Ltd. PT. Daewoo Securities Indonesia 41st Floor, Tower 42 25 Old Broad St. London EC2N 1HQ United Kingdom Six Battery Road #11-01 Singapore, 049909 Equity Tower Building Lt.50 Sudirman Central Business District Jl. Jendral Sudirman Kav. 52-53, Jakarta Selatan Indonesia 12190 Tel: 44-20-7982-8000 Tel: 65-6671-9845 Tel: 62-21-515-1140 Beijing Representative Office Shanghai Representative Office Ho Chi Minh Representative Office 2401A, 24th Floor, East Tower, Twin Towers B-12 Jianguomenwai Avenue Chaoyang District, Beijing 100022 China Room 38T31, 38F SWFC 100 Century Avenue Pudong New Area, Shanghai 200120 China Suite 2103, Saigon Trade Center 37 Ton Duc Thang St, Dist. 1, Ho Chi Minh City, Vietnam Tel: 86-10-6567-9299 Tel: 86-21-5013-6392 Tel: 84-8-3910-6000 Daewoo Investment Advisory (Beijing) Co., Ltd. 2401B, 24th Floor, East Tower, Twin Towers B-12 Jianguomenwai Avenue, Chaoyang District, Beijing 100022 China Daewoo Securities (Mongolia) LLC #406, Blue Sky Tower, Peace Avenue 17 1 Khoroo, Sukhbaatar District Ulaanbaatar 14240 Mongolia Tel: 86-10-6567-9699 Tel: 976-7011-0807 6