Short Comment
Main names in KRX Media & Entertainment index are NAVER Corp (035420.KS), Kakao Corp (035720.KS), NCSoft Corp (036570.KS), and Netmarble Corp (251270.KS). Their services are totally different each other. NAVER’s main product is Search Engine, Kakao’s is Messenger, and NCSoft and Netmarble are operating PC and Mobile Games. Nevertheless, we can tie them up as one sector in point of the time people use in the internet via PC or Smartphone.
The sector’s main business ground is the local market. A few players like NAVER or Netmarble have the exposure around 1/3 of their revenues to the US, Japan, or other countries, but the sector has the exposure more than 2/3 to the local market totally. It could be bad news considering sluggish Korean economic growth, but the market is not accepting the situation in that way.
Market participants are worrying about main industries in the country like Petrochemical, Steel, or Shipbuilding, and recent performance of the sectors are weighting their concern. Tangled with sluggish economic indices in the world, the large exposure of the market to the economic cycle is dragging KOSPI index. KOSPI200 has fallen by 3.6% since Aug 1.
On the other hand, KRX Media & Entertainment has risen more than 3% since Aug 1. The main reason of outperforming is that the sector is directly relevant with the companies’ business rather than the economic cycle. People use the internet whether the economy is bad or not. We can say the market is reflecting feature of the sector.
The services like NAVER’s or Kakao’s are making profits via the advertisement. They are taking the share in advertisement market from traditional channels like Television Broadcasts, offsetting the effect from sluggish regional economic growth. NAVER and Kakao have increased revenues from advertisement businesses by 14% and 49.5% respectively YoY for the first half of this year. The revenues from the advertisement have taken 53.9% and 55.8% respectively in the total revenues for the period. The revenues of the advertisement of the biggest three TV broadcasting companies in the country had decreased by 8%, about KRW112billion, YoY for last year.
The Game companies are getting the revenues from the retail, but game players never decrease their expenses for the game even if they decrease the expenses for the food. It means that their performance is more depending on quality and management of their Games than the economic cycle.
With the features of it, IT-Software sector could be including the best players in the local market for a while. KRX Media & Entertainment index ended at 1,646.18 last trading day and my target of the index is 2,000.
KRX Securities index Aug 25.pdf