SEOUL, KOREA - We maintain BUY on NHN and a TP of W370,000, which equates to 23.0x 12MF PE (EPS 16,107), on the following. 1) We believe market cap should not decrease after the spin off, considering the growing Line subscribers, expanding sales and improving fundamentals at the game division. 2) The effects of tighter regulations should be limited as NHN has already prepared responses. 3) Shares are trading at 19.2x 2013F PE, just 45.9% of global SNS leader Facebook’s 2013F PE of 41.9x.
- NHN shares face a trade suspension from Jun 30 to Aug 28 due to the spin-off of the game division (new entity NHN Entertainment). We advise buying on any pullbacks caused by concerns over liquidity due to the suspension or possible market cap erosion after the spin off.
- While the regulatory outlook remains uncertain, the effects on NHN’s enterprise value should fade as web-board game sales weighting declines to 9.6% in 2013. In May, NHN was audited for unfair practices related to its dominant market position by the Fair Trade Commission. But, this should have only a limited effect on NHN’s value.
*Source: Korea Investment & Securities Co.