20080715-Mirae Asset-KTH (036030.KS)

Fast Expanding Contribution of Twelve Sky 2
Revenue rapidly expanding despite stiff competition
We maintain a BUY rating and TP of W13,000 for KTH. Despite cut-throat
competition in the domestic online game market, the company’s revenue has
been rapidly expanding following the successful commercialization (on April
11) of new game Twelve Sky 2 (monetized with virtual items). The company is
expected to see revenue contribution of Twelve Sky 2 increasing in 2H08 while
showing even stronger earnings momentum on the exploding expansion of the
IPTV market. The company is also expected to post solid earnings results in
2Q08.
Twelve Sky 2 revenue estimated at W2.0bn in 2Q08
Revenue from Twelve Sky 2 is estimated at W400mn in April, W1.2bn in May,
and W1.6bn in June. We estimate Twelve Sky 2 revenue would reach W2.0bn
in June if counting revenue created at PC rooms in the month. From its
commercialization, the game has ranked 10th by market share in PC game
rooms with 40,000 concurrent users. Given that casual games generally post
record revenue one year following commercialization, the upward trend of
Twelve Sky 2 revenue is forecast to continue for a while.
Earnings momentum to further strengthen in 2H08
We believe KTH should enjoy reinforced earnings momentum in 2H08. While
its new game required high start-up costs in 2Q08, these are expected to drop
sharply in 3Q08. Moreover, the game is already showing a good upward
revenue trend and is forecast to continue expanding its revenue contribution
for the company. Meanwhile, the IPTV market is expected to grow substantially
in 2H08 and beyond. The number of subscribers to KT’s Mega TV has rapidly
risen from 330,000 at the end of 2007 to 570,000 in March 2008, and is now
approximately 700,000.