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Top-line growth continues

Initiate at Buy with a TP of W10,000

We initiate our coverage on NHN KCP with a Buy rating and target price of W10,000. We derived our target price by applying a P/E of 10.4x to our 12-month forward EPS estimate of W974. Our target P/E is the average multiple in 2022-23, as market conditions are currently similar to those seen during the post-pandemic reopening phase.

This year, the stock has suffered a steep drop amid slowing Chinese e-commerce-related momentum (causing a pullback in 1H24) and the Tmon/WeMakePrice crisis (contributing to a further decline since July). However, even as shares have declined, NHN KCP has seen continued growth in transaction value and revenue. Given solid earnings, we believe the stock looks undervalued at the current historical-low valuation levels.

Tmon/WeMakePrice issue to have a limited impact; top-line growth continuing

In 3Q24, one-off losses related to the Tmon/WeMakePrice issue were around W1.4bn. Although we cannot rule out the possibility of additional losses, we believe any further impact from the issue will be smaller than feared. In fact, the issue could have positive implications for the payment gateway industry over the medium to long term, as tighter government oversight should squeeze out smaller players and improve market stability. We also see potential opportunities in new markets like escrow services.

For 3Q24, NHN KCP delivered double-digit growth, with revenue of W272.4bn (+12% YoY) and transaction value of W12.1tr (+11% YoY). This growth is particularly encouraging considering that domestic online shopping transactions grew only 3.0% YoY in the quarter. We attribute the strong results to the firm’s extensive network of merchant partners (including large domestic and international businesses) as well as a steady influx of new merchants. We expect transaction growth to remain firm.

Earnings outlook

We expect transactions to increase around the year-end peak season. For the full year, NHN KCP should maintain strong top-line growth, backed by solid growth at major customers (domestic e-commerce platforms, OTTs, imported EV dealers, app stores, travel-related companies, etc.). We forecast 2024 transaction value at W49tr (+13% YoY) and revenue at W1.1tr (+13% YoY).