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Poised for a re-rating

2Q23 review: Margins recover in earnest

• For 2Q23, NAVER reported revenue of W2.41tr (+18% YoY) and operating profit of W373bn (+11% YoY), in line with the consensus. Search platform revenue came in at W925bn (+0.5% YoY), 2% below the consensus, hurt by slowing growth in search ads and continued weakness in display ads. OP margin recovered to 15.5% (expanding QoQ for the first time in four quarters), aided by cost control efforts.

Maintain Buy and lift TP by 4% to W290,000

• We revise up our earnings forecasts for NAVER and accordingly lift our target price by 4% to W290,000 (from W280,000), which is based on a target P/E of 39x. We recommend aggressively accumulating the stock, as we see momentum building over both the short term (release of AI-enabled services) and medium/long term (earnings growth). AI-related expectations should increase with the upcoming release of HyperCLOVA X (set to be unveiled on Aug. 24). The stock is trading at a 12-month forward P/E of 29x, the lower end of the post-2016 valuation range. We expect the stock to be re-rated in 2H23, backed by margin improvement and visibility on new growth engines.