Korean game stocks rebound on expectations for new releases, China

Netmarble Corp. headquarters [Courtesy of Netmarble]

Shares of Korean game companies, which saw their stocks fall due to a lack of hit new releases last year, are showing signs of a rebound this year on expectations of new game launches and reopening of the Chinese market.

According to the Korea Exchange on Tuesday, Netmarble Corp.’s stock gained 26.83 percent in the past month from March 13 to April 11. Krafton Inc. and Pearl Abyss Corp. also saw their stock price up by 13.52 percent and 7.16 percent, respectively.

The stock increase reflects growing expectations for their business improvement as China, which accounts for about 25 percent of the global gaming market, resumed issuing service licenses for Korean games late last year.

“Valuations of game companies are rising due to the inclusion of Korean games among the licenses issued in China in March,” said Lee Seung-hoon, an analyst at IBK Investment & Securities Co. Lee raised the target price for Netmarble to 78,000 won ($58.9) from 61,000 won, citing that the game developer would be the biggest beneficiary of the resumed license issuance in addition to new game launches this year.

Game stocks are also expected to benefit from a rebound in tech stocks amid speculation that interest rates might be approaching a peak. Korean game stocks are said to be more attractive in terms of valuation compared to overseas peers as their shares fell due to the lack of new games last year.

Expectations of a recovery in earnings with new game launches in the second half also add to the positive outlook. Jeong Eui-hoon, an analyst at Eugene Investment & Securities Co., raised his price target for Pearl Abyss to 52,000 won from 48,000 won on Monday and upgraded the stock to a buy from neutral.

“I expect the company’s first-quarter operating profit to increase 38.7 percent on year to 7.2 billion won,” Jeong said. “The stock price is likely to be more sensitive to a potential release of in-game footage of Crimson Desert in August.”