The authors are analysts of Shinhan Investment Corp. They can be reached at sokang@shinhan.com and kimaram@shinhan.com, respectively. -- Ed.
2Q22 review: Earnings meet consensus, one-off lawsuit-related costs Pokie Spins App
DoubleU Games posted operating profit of KRW41.8bn (–14.8% YoY, –2.1% QoQ, operating margin of 27.9%) on sales of KRW149.6bn (-5.6% YoY, -0.2% QoQ) for 2Q22, meeting the consensus estimate of 42.4bn. Despite a slight QoQ dip in user payments, the decline in sales was minimal thanks to favorable forex conditions. Marketing spend was similar to the average quarterly levels. Meanwhile, the company recorded a net loss due to non-operating expense of KRW92.5bn as provisions for a class action lawsuit. Excluding the one-off, net profit comes to roughly KRW33.2bn. The average monthly sales in July jumped 9% QoQ thanks to the introduction of new meta contents to its existing social casino games. The company aims to increase user gaming time and payments through contents differentiation.
Opportunities for growth in store
After enjoying a pandemic boost, DoubleU Games has seen its sales stabilizing at lower levels. We believe opportunities for bigger top-line growth vs. casual games will open up for the company, driven by iGaming, skill games, regional coverage expansion of social casinos, and launch of new casual games.
DoubleU Games is gearing up to acquire a company with iGaming license and pushing ahead with the certification process for around 20 slots software. The uptrend in online penetration rate of casino games in Europe has been further accelerated by the pandemic. The acquisition of a company with a large pool of users should enable DoubleU Games to benefit from the market growth. The development of skill games is almost complete and ready for testing. Bingo and Solitaire are slated to be launched in 4Q22. The new casual slot machine game Spinning in Space will start closed beta test in August followed by an open beta test in 4Q22. It is an adventure genre slot game like the world’s top-grossing game Coin Master, but with focus on the storyline and customization.
Retain BUY for a revised-down target price of KRW55,000
We maintain our BUY rating on DoubleU Games, but lower our target price to KRW55,000 based on a 12-month forward EPS of KRW5,468 and a target PER of 10x. We factored in the one-off provisions into share valuations due to the lingering uncertainty over the outcome of the lawsuit. Given our conservative assumptions made for the new businesses, any success with iGaming, DoubleU Casino 2.0, and skill games will lead to upward revisions of earnings forecasts and share valuations.
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