Performance: -27.4%
Korea-listed NAVER Corp was the second biggest loser in our portfolio for the four-month period, with a 27.4% loss. Naver is a global information and communication technologies (ICT) company, providing South Korea’s number one search portal Naver and its subsidiaries and affiliates provide services which include Line messenger, Snow camera app and metaverse platform Zepeto. Naver conducts research and development of artificial intelligence, robotics, autonomous vehicles, mobility and other technology trends through its Naver Labs.
Our thesis is that it is a company that is investing in the right businesses to achieve its medium and long-term goals, with shortterm earnings supported by its current investments. It is a very comprehensive business in the ICT service space, and is expected to benefit strongly from trends post-pandemic. Naver’s new addition in its management which has expertise in the M&A space should also aid in the company’s short and longterm growth through strategic investments and acquisitions.
The company’s most recent financial quarter was slightly underwhelming, mainly due to higher costs, which include several one-off costs for marketing spend. Naver’s longerteam goal is to scale and increase its business scope, hence these costs and investments are necessary for its more nascent business segments to scale up.
Naver’s strategy of M&A is also expected to continue to further grow its newer businesses globally, and strategically for greater synergy for its existing business, such as Line’s integration with Tokyo-based Z Holdings.
Further, margins are expected to improve as management addresses the cost issues, by having tighter control over its marketing costs. Other tailwinds include Naver’s Webtoon monetisation globally and further opportunities from M&A in the fintech, cloud and metaverse space which syncs well with its other businesses. Also, the structural shift towards online retail is further expected to benefit Naver, as its share of South Korea’s online retail market is expected to grow strongly.
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Financials-wise, the company continues to record profit, positive operating cash flow and free cash flow. Operating margins have also been strong, ranging 15% to 25% over the past 10 financial quarters. The company’s balance sheet is sound, with a current ratio of 1.4 times, a debt-to-equity ratio of 0.17 times and an interest coverage ratio of 24.6 times, implying that liquidity and solvency risks are unlikely to trouble the company.
Sentiments-wise, there are 29 “buy” calls, two “hold” calls and no “sell” calls on the company from analysts. The average target price for the company is around 75% above its current trading price of KRW237,500 ($253). Based on our revised in-house valuations, we think the company’s fair valuation is at least 40% above its current trading price. Though share prices may be slightly depressed over the very short-term due to investment spending, we think Naver has great potential to strongly perform over the longerterm and will be able to control its costs.
Disclaimer: This is a virtual portfolio for information purposes only and does not constitute a recommendation or solicitation or expression of views to influence readers to buy or sell stocks, including the stocks mentioned herein. This portfolio does not take into account the investor’s financial situation, investment objectives, investment horizon, risk profile, risk tolerance and preferences. Any personal investments should be done at the investor’s own discretion and/or after consulting licensed investment professionals, at their own risk.
