“Pearl Abyss, the new title from competitors revealed at G-Star is not a threat to ‘Crimson Desert’”

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[Insight Korea=Jang Won-soo Reporter] Kiwoom Securities stated on the 24th that the reason for presenting Pearl Abyss as the top preferred stock in the gaming sector is due to the significant gap considering that the upcoming new releases of major competitors unveiled at this G-Star do not surpass 'Crimson Desert'.

Kim Jin-goo, a researcher at Kiwoom Securities, stated, "The target stock price calculation for Pearl Abyss is based on the current value as of this year, applying a target price-earnings ratio (PER) of 25 times and an annual discount rate of 10% to the controlling shareholder's equity of 232.3 billion won in 2025, when the initial performance of 'Red Desert' is fully realized." He added, "The release date of 'Red Desert' has been postponed by one year from the previously expected second quarter of 2024 to the second quarter of 2025, reflecting a neutral level, but the cumulative sales volume, including initial quarterly sales, will maintain the same level as before based on global user feedback from the released in-game video."

Kim Jin-goo, a researcher, explained that "the reason for presenting Pearl Abyss as the top preferred stock in the gaming sector is that the release of 'Red Desert' has been delayed by about a year, exceeding the 3-6 month level that the market can tolerate, and therefore the point at which financial contributions will occur is far away, considering that the major competitors' upcoming new releases revealed at this G-Star cannot surpass the company's Red Desert, resulting in a significant gap."

Researcher Kim pointed out that "However, after the video release at Gamescom in August, users have been continuously wanting a continuous play version of the in-game video rather than segmented in-game footage. From the perspective of Gamescom, if more than six months pass, there is a possibility that unfavorable situations may arise for the company in terms of user trust and global interest."

He added, "In connection with the delay of the release of 'Red Desert', the estimated release time for the multiplayer of Goblin and Red Desert has also been mechanically postponed by one year."

He stated, "Pearl Abyss management should conduct more authentic and specific communication with all investors in an official setting," and mentioned, "'Crimson Desert' is a game that takes 7 years from the start of development to the expected release date, which exceeds the typical game development period."

He diagnosed that "Currently, Pearl Abyss has many long-term investors who trust and invest in its own game engine and the high quality of new titles, and considering that these investors are in a negative return situation, the company needs to officially disclose the progress of development, the reasons for needing additional time, and the expected release timing compared to the previous year to the investors in an official setting."

He predicted that "this is generally because listed companies raise funds from investors during the initial public offering (IPO), and as the value of this is transferred in the market, the same qualifications are transferred to the current shareholders."

He stated, "In the future, if the above conditions are not confirmed in an official setting, it will be explicitly stated that the Pearl Abyss multiple will be mechanically discounted for investor protection purposes."

Summary
Kiwoom Securities has designated Pearl Abyss as its top pick in the gaming sector, citing a significant gap between the company's upcoming game 'Crimson Desert' and competitors' new releases showcased at G-Star. Analyst Kim Jin-goo explained that the target price for Pearl Abyss is based on the expected performance of 'Crimson Desert' by 2025, applying a price-to-earnings ratio of 25 and a discount rate of 10%. Although the release of 'Crimson Desert' has been delayed from Q2 2024 to Q2 2025, the anticipated cumulative sales remain unchanged based on global user feedback from in-game footage. Kim noted that the delay could negatively impact user trust and global interest if prolonged beyond six months. He also adjusted estimates for the multiplayer release of 'Dokeebi' and 'Crimson Desert' accordingly. Kim emphasized the need for Pearl Abyss management to communicate transparently with investors about the development timeline, as the game has taken seven years to develop, exceeding typical timelines. He warned that if conditions are not clarified in official settings, a mechanical discount on Pearl Abyss's valuation may be applied for investor protection.