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26 AUGUST 2014

INITIATION
KOREA / INTERNET19

AFREECATV

067160 KS

BUY

TARGET PRICE

KRW35,000.00

CLOSE

KRW27,800.00

UP/DOWNSIDE

+25.9%

PRIOR
TPIN TP
CHANGE

KRW

HOW WE DIFFER FROM CONSENSUS

MARKET RECS

TARGET PRICE (%)

NM

POSITIVE

EPS 2014 (%)

NM

NEUTRAL

EPS 2015 (%)

NM

NEGATIVE

KEY STOCK DATA

Unique platform, unique growth


n

YE Dec (KRW b)

From creating a differentiated culture


AfreecaTV operates Koreas largest peer-to-peer live broadcast
platform. It has successfully adopted this platform in PC as well as
mobile and created a very unique platform with a growing sticky user
base, in our view. As a first mover operating since 2006, AfreecaTV
has created a fan-based economy with over 2.7m daily visitors.
 to creating profits
AfreecaTVs key monetisation models are: 1) platform item sales, 2)
PC/mobile game sales, and 3) platform advertising. As the
companys establishes itself as a legitimate broadcasting medium
with high traffic, we see sharp upside to its advertising revenue.

2013A

2014E

2015E

2016E

48

58

70

84

18.76

415

586

874

EPS growth (%)

(94.2)

2,114.5

41.1

49.1

Recurring P/E (x)

1481.7

66.9

47.4

31.8

Revenue
Rec. net profit
Recurring EPS (KRW)

Dividend yield (%)


EV/EBITDA (x)

Expanding viewership on additional content and overseas


With its TV-less audience expanding and more partnerships with
content providers, we expect traffic to increase through diversification
based on viewer age and gender. AfreecaTV is expanding beyond
Korea as it: 1) launched a broadcasting service in Japan; 2) entered
a contract with YouTube; and 3) plans to enter the US and Taiwan.
Initiate coverage at BUY with a TP of KRW35,000
While we continue to highlight the power of platform with mobile
traffic and ability to add monetisation models around it, we believe
AfreecaTV is still in the nascent stage of monetisation. Despite the
massive outperformance YTD, we see potential for further re-rating.
We initiate coverage of AfreecaTV with a BUY rating and a DCFbased target price of KRW35,000.

0.5

0.5

0.6

31.4

22.7

17.0

Price/book (x)
Net debt/Equity (%)

7.2

7.0

6.1

5.2

17.8

14.9

13.1

8.6

0.5

10.6

13.3

17.1

ROE (%)
Aug-13

0.4
54.2

Nov-13

Feb-14

May-14

Aug-14

35,340.00
145
25,340.00

95
45

15,340.00
(5)
5,340.00
(KRW)

AfreecaTV

Share price performance

(55)
(%)

Rel to KOSPI Index

1 Month

3 Month

12 Month

Absolute (%)

(3.6)

4.9

167.3

Relative to country (%)

(5.0)

2.7

157.1

Next results

November 2014

Mkt cap (USD m)

281

3m avg daily turnover (USD m)

21.2

Free float (%)

Daily active viewer trend

Major shareholder

('000)

12m high/low (KRW)

4,000

66
Saint International (21%)
31,000.00/8,900.00

3m historic vol. (%)

3,000

ADR ticker

2,000

ADR closing price (USD)

1,000

Issued shares (m)

May-14

Jan-14

Mar-14

Nov-13

Jul-13

Sep-13

May-13

Jan-13

Mar-13

Nov-12

Jul-12

Sep-12

May-12

Jan-12

Mar-12

Nov-11

Jul-11

Sep-11

May-11

Jan-11

Mar-11

Sources: Bloomberg consensus; BNP Paribas estimates

Source: AfreecaTV

Justin Lee
justin.lee@asia.bnpparibas.com
+822 2125 0544

Our research is available on Thomson One, Bloomberg, TheMarkets.com, Factset and on http://eqresearch.bnpparibas.com/index. Please contact your salesperson for
authorisation. Please see the important notice on the back page.

PREPARED AND PUBLISHED BY NON-US BROKER-DEALER(S): BNP PARIBAS SECURITIES KOREA CO LTD
THIS MATERIAL HAS BEEN APPROVED FOR U.S. DISTRIBUTION. ANALYST CERTIFICATION AND IMPORTANT DISCLOSURES CAN BE FOUND AT APPENDIX ON PAGE 19

63.6
10

AfreecaTV

067160 KS

Justin Lee

Investment thesis

Catalyst

We initiate coverage on AfreecaTV with a BUY rating and a


DCF-based target price of KRW35,000.

Potential catalysts for AfreecaTVs share price include


strong momentum in raising brand awareness and user
growth with major events.

AfreecaTV provides a social communication platform that


engages users in online group activities through mostly video
(user-created content and broadcast of outsourced channels).
The company generates revenue through item sales on its
platform and mobile games, and advertisement sales.
We estimate solid average earnings growth of 45% over
2014-16, driven by robust user and ARPU growth. As
AfreecaTV adds content from various external sources to
attract a new generation of users and big-name advertisers,
we expect secular growth to continue.

Company background

Risks to our call


The risks to our forecasts include: 1) competition from
domestic and/or foreign players; 2) stagnant mobile game
sales; 3) regulatory changes; and 4) slower-than-expected
user growth.

Key assumptions

AfreecaTV mainly provides streaming, downloading, video on


demand (VOD), advertising services and content delivery
network (CDN) services. It also services mobile games on its
platform.

2014E

2015E

2016E

(KRW b)

(KRW b)

(KRW b)

58.3

70.3

84.1

46.1

63.4

76.9

Item sales

28.9

37.2

43.9

Ad sales

17.2

26.2

33.1

12.3

6.9

7.1

Revenue
AfreecaTV platform

Games

Source: BNP Paribas estimates

Principal activities (2014E revenue; BNPP estimates)

Earnings sensitivity
-------- Base --------

AfreecaTV platform (78.97%)

2014E

2015E

2014E

2015E

2014E

2015E

Revenue

58.3

70.3

54.2

63.3

64.2

77.3

6.2

8.4

5.6

7.3

6.9

9.6

(10.0)

(14.0)

12.0

14.0

10.6

12.0

10.2

11.5

10.8

12.4

(0.3)

(0.5)

0.2

0.4

Change (%)
OPM (%)
Change (%p)

Key executives

-------- Bull --------

(KRW b)

Operating profit

Games (21.03%)

-------- Bear --------

Source: BNP Paribas estimates


Age

Since

Title

SG Seo

48

2012

CEO

CY Jeong

51

2012

Vice President

As the company derives most of its revenue from the


platform business, its user growth and ARPPU trend are
the key swing factors
If we lower our user growth forecast by 5%, operating
profit (OP) would decline by 14% in 2015E, all else being
equal

http://www.afreeca.com

If we raise our user growth forecast by 5%, OP would rise


by 14% in 2015E, all else being equal

BNP PARIBAS

26 AUGUST 2014

AfreecaTV

067160 KS

Justin Lee

Initiating with BUY; unique business model calls for unique growth
AfreecaTV operates Koreas largest peer-to-peer live multi-media broadcast platform
that provides virtual live social gathering covering a wide range of interests and
topics. Viewers can watch videos on PCs and mobile devices. It also generates
revenue from the game publishing business. We believe it has successfully adopted
its platform in mobile as well and created a very unique platform with a growing
sticky user base. As a first mover of its kind operating since 2006 in Korea, it has
successfully created a fan-based economy that over 2.7m users on average visit
daily (as at July 2014). It has the potential to become an even more powerful and
pervasive platform player based on the online/mobile fan-based economy model, in
our view.
It runs a user-driven ecosystem where performers (called broadcast jockeys [BJs] by
AfreecaTV) perform and chat with their viewers during live shows in popular content
categories such as sports commentary, interactive games, game broadcasts, visual
radio and eating. AfreecaTV monetises its content through a gift economy, item
sales, and advertising. Viewers pay virtual currency to performers as a form of
gratitude. This is later cashed in for currency by the performers, and the company
takes a share of the payment. Simply put, it is a business model that is turned upside
down instead of paying a monthly cable or TV subscription fee, viewers choose
which content to pay for, and communicate with each other as well. The companys
platform is free for users and it monetises its user base through the broadcast
platform and in-game item sales. In 2013, AfreecaTV generated 70% of its sales
from its broadcasting platform (44% item sales), 25% from its online games, and 5%
from mobile games.
The broadcast platform revenue is mainly earned through sales of virtual items and
advertisement revenue it receives from various advertisers. Advertising revenue is
mainly generated through the sales of different forms of advertising on webbrowser/client (PC online) and its mobile app. The company enters into advertising
contracts with third-party advertising agencies and also directly with advertisers. The
different formats that advertisers use to place advertisements on AfreecaTV include
banners, text-links, videos (including in between ads), logos and buttons. Item sales
accounted for 65% of the total platform revenue in 2013.
There are three cash items sold on the platform: Star Balloons, Stickers and Quick
View. AfreecaTV users buy Star Balloons and Stickers and send them to the BJs to
show their appreciation. Both items are priced at KRW100 each, with a minimum
purchase of 10 units. Star Balloon sales are shared between AfreecaTV and the
performers, with the latter taking 60-80% of the proceeds (depending on the overall
ranking of the BJ), whereas the company takes 100% of the sales of Stickers. Once
BJs receive over 1,000 Star Balloons, they can convert the received items into real
cash. The company also offers Quick View, priced at KRW3,900 per month, which
enables viewers to watch ad-free and high definition quality feeds and join video
channels that are otherwise already full (maximum viewer capacity reached). The
company takes all of the Quick View proceeds. The revenue contribution of
advertisements to total revenue rose from 14% in 2012 to 26% in 2013. The
company expects the trend to continue, as improvements in user traffic and content
quality will likely provide more ad opportunities.

BNP PARIBAS

26 AUGUST 2014

AfreecaTV

067160 KS

Justin Lee

EXHIBIT 1: AfreecaTV revenue breakdown (2013)

EXHIBIT 2: AfreecaTV revenue breakdown (2015E)


Games
10%

Games
30%
Platform
sales (item
sales)
44%

Platform
sales (ad
sales)
37%

Platform
sales (item
sales)
53%

Platform
sales (ad
sales)
26%
Sources: AfreecaTV; BNP Paribas

Source: BNP Paribas estimates

EXHIBIT 3: AfreecaTV annual revenue and growth rate


(KRW b)

Sales (LHS)

(%)

OPM (RHS)

120

18
16

100
14
80

12
10

60
8
40

6
4

20
2
0

0
2011

2012

2013

2014E

2015E

2016E

Sources: AfreecaTV; BNP Paribas estimates

EXHIBIT 4: AfreecaTV revenue-sharing model with performers


Give virtual items as
appreciation
AfreecaTV Users

AfreecaTV
Performer

Exchange
virtual items
for real cash
Sell virtual
items

Purchase
virtual items
20-40% commission
(depending on
performer's ranking)

AfreecaTV

Source: BNP Paribas

Watching other people (by performers) eat is a popular category, primarily during
dinner time (or late-night) as it helps mitigate viewers sense of loneliness when
eating alone, and it has been highlighted by US media in multiple cases as creating a
new culture. Playing games is another popular category, and top performers
continuously attract over 100,000 simultaneous viewers on average. Other popular
content includes sports DJs, visual radio, and on-the-spot broadcasting. The
company has rights to broadcast live TV programmes, such as sports (baseball, the

BNP PARIBAS

26 AUGUST 2014

AfreecaTV

067160 KS

Justin Lee

Winter Olympics) and popular local TV programmes. This has broadened the user
base from viewers in the 10-20s age group to those in their 30-40s. It also sees
smartphone visitors as a key growth driver with 25m mobile apps already
downloaded. The number of platform unique visitors (UV) has consistently been on
the rise, with the figure reaching 3.5m per day in February 2014, thanks to the Winter
Olympics in Sochi.
AfreecaTV is effectively the only personal broadcast platform available in Korea.
Various companies, including Pandora TV, Daum and TVing (a subsidiary of CJ),
tried but failed to gain market share in the personal broadcast platform business.
AfreecaTV attributes its competitive edge to: 1) the first-mover advantage; and 2)
strong, long-standing relationships with the performers. The company officially
started the AfreecaTV broadcasting service in 2006 and has strengthened its
monopolistic position in the business. Also, management acknowledges the
importance of maintaining strong ties with the companys BJs, because AfreecaTVs
business would not be sustainable if the broadcasters migrated to other platforms.
Therefore, the company allows BJs to take 60-70% of Star Balloon item sales.

EXHIBIT 5: AfreecaTV daily unique visitors monthly trend

EXHIBIT 6: AfreecaTV peak concurrent users

('000)

('000)

4,000

500

3,500

450

3,000

400

460

360
330

350

2,500

300

2,000

260

250

1,500

200

1,000

150

Apr-14

Jan-14

Oct-13

Jul-13

Apr-13

Jan-13

Oct-12

Jul-12

Apr-12

Jan-12

Oct-11

50

Jul-11

Apr-11

100

Jan-11

500

Source: AfreecaTV

0
2011

2012

2013

1H14

Source: AfreecaTV

EXHIBIT 7: AfreecaTV quarterly platform revenue trend


(KRW b)
16
14

Item sales (LHS)


Advertising (LHS)
% of advertising as of total (RHS)

12

(%)
60

50

10
8

40

6
4

30

2
0

20
1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14E4Q14E

Sources: AfreecaTV; BNP Paribas estimates

BNP PARIBAS

26 AUGUST 2014

AfreecaTV

067160 KS

Justin Lee

EXHIBIT 8: AfreecaTV user breakdown by gender

EXHIBIT 9: AfreecaTV user breakdown by age distribution


50s+
8.9%

Female
27.0%

10s
29.7%

40s
14.9%

30s
15.8%

Male
73.0%

20s
30.7%

Note: as of May 2014


Sources: Koreanclick; BNP Paribas

Note: as of May 2014


Sources: Koreanclick; BNP Paribas

EXHIBIT 10: Korea Zero-TV households

EXHIBIT 11: Korea overall monthly reach by medium

(m)

(mins)

Watching video on internet

6.0

700

Watching video on a mobile phone

5.0
5.0

600
500

4.0

400
3.0

300

2.0
2.0

200
1.0

100

0.0

0
2007

Source: Nielsen Korea

2013

4Q11

4Q12

4Q13

Source: Nielsen Korea

Game business
The game business accounted for KRW14b, or 30%of the companys total sales in
2013. Building on its popularity among gamers, AfreecaTV has created a mobile
game centre where users can click and play various genres of mobile games. We
estimate that about 70% of its KRW14b game sales in 2013 were generated by its
existing online game, Tales Runner. The company only began focusing on the mobile
game channelling service in 2H. It services 34 mobile games (as of August), all of
which were licensed from third-party developers (including its own game studio
subsidiaries). It shares about 20% of total sales generated by its mobile platform
games with its developers and recognises the sales on a net sales basis (after app
store commissions). While the revenue contribution of the platform business has
grown steadily from 42% in 2011 to 70% in 2013, the game businesss sales portion
fell from 47% to 30% in the same period. We expect the company to generate
around KRW8b from mobile games in 2014.

BNP PARIBAS

26 AUGUST 2014

AfreecaTV

067160 KS

Justin Lee

EXHIBIT 12: AfreecaTV = platform + online game + mobile game

To be sold

Online Game
Tales Runner

SNS Platform
Revenue
-Item sales
-Advertisement

-Publishing

Revenue
-Item sales
-Commercialization

AfreecaTV
25%

-Real-time broadcasting
-Game center (Channeling)

Mobile Game

70%

Game
-Publishing

Revenue
-Item sales
-Commercialization

5%
Source: BNP Paribas

In mid-August, AfreecaTV announced that it would sell its business rights for its
online game, Tales Runner, to Smilegate Holdings (unlisted) for KRW3b. We note
that the overall traffic and profit contribution trends for Tales Runner have been
declining as the game was launched nine years ago. The company attributes the
change in mix to a decline in domestic traffic of Tales Runner, coupled with fastgrowing user base of AfreecaTV SNS media platform. We expect the overall
transaction to be completed by early October.
AfreecaTV is addressing the declining trend of online games by focusing on mobile
games. The company published four mobile games in 2013, resulting in KRW2b in
revenue. Management aims to publish 10-15 mobile games in 2014, guiding for
KRW8bn-10bn in revenue generation. While AfreecaTVs mobile game platform is
less competitive than the KakaoTalk platform and/or the BAND game center, we see
potential, especially if AfreecaTV finds a way to further leverage its best performers
and utilise its fan-based economy.

EXHIBIT 13: Korea mobile game platform comparison


Operator
Launch date
# of games (as of Aug-14)
Commission rates (%)
Addressable audience (m)

Key differences

Afreeca Game Center

BAND Game Center

Kakao Game

AfreecaTV

Naver (Camp Mobile) [035420 KS]

Kakao (to be merged with Daum [035720 KS])

September 2013

May 2014

July 2012

33

38

544

Around 20

14-16

21

26

30

140

Mobile app download

BAND registered users

KakaoTalk registered users

clan vs clan

Competition with BAND friends

Competition with Kakao friends

Promotion through BJ broadcast

Promotion within NAVER, BAND

Promotion within Kakao platform

Sources: Companies data; BNP Paribas

BNP PARIBAS

26 AUGUST 2014

AfreecaTV

067160 KS

Justin Lee

EXHIBIT 14: AfreecaTV game players [Jun-2014]


(m)

Total AfreecaTV users

EXHIBIT 15: Mobile game platform comparison [Jun-2014]


(m)

Game users

Non-game users

Game users

3.5
25

38%

3.0
20

2.5
2.0

15

11%

1.5
10
1.0
5

0.5

6%

0.0
Total AfreecaTV users

AfreecaTV

Game users

Sources: Koreanclick; BNP Paribas

BAND

KakaoTalk

Source: Koreanclick

Evolution into a comprehensive broadcast platform picks up speed this year


AfreecaTV has been successfully adding additional content, other than user-created
content by 1) securing the rights to broadcast major sports channels and 2)
partnering with existing TV stations. The company has been streaming the content of
four general programming channels since March.
AfreecaTV entered into a broadcast contract with the state-run network KBS in late
May. This is the first time AfreecaTV has secured a contract with a terrestrial TV
station. Under the contract, AfreecaTV can air KBS programmes and shows (realtime and reruns). The contract was signed much earlier than expected, and its terms
were more favourable as well, according to management. Also, in August, AfreecaTV
announced that it expects negotiations with other terrestrial broadcasters (SBS,
MBC) to progress smoothly in 2H. Once AfreecaTV secures broadcast content from
all major broadcasters (including cable TV networks), as per it plans, its traffic should
surge on the back of diversifying viewer age and gender. We expect the company to
upgrade its user interface (UI) and implement marketing promotions in 2H14.
By watching the same content through AfreecaTV, viewers can share their opinions
and views in real time with other viewers and the broadcast jockeys, and the same
content can be reproduced by applying AfreecaTVs ecosystem.

EXHIBIT 16: AfreecaTV - partnership with existing TV channels


Date

Station / content

Details

2011

Korea Baseball Organization

Right to broadcast Korean baseball league games

Mar-14

JTBC / TV Chosun / MBN / Channel A

Four domestic comprehensive programming channels

May-14

KBS

Largest domestic terrestrial TV station (KBS1, KBS2)

Aug-14

EBS

Only terrestrial TV station covering educational content

2H14E

SBS (034120 KS)

Domestic terrestrial TV station

2H14E

MBC (iMBC; 052220 KS)

Domestic terrestrial TV station

Note: All TV stations mentioned above without tickers are not listed
Sources: Company data; BNP Paribas estimates based on company guidance

BNP PARIBAS

26 AUGUST 2014

AfreecaTV

067160 KS

Justin Lee

EXHIBIT 17: AfreecaTV mobile platform screenshots

Source: AfreecaTV

Earnings forecasts
For 2Q14, AfreecaTV posted lower earnings q-q with revenue of KRW13.9b (vs
KRW14.3b in 1Q14) and operating profit of KRW1.2b (vs KRW1.9b in 1Q14). In our
view, the weaker earnings were due to: 1) the onset of the low demand season, with
students returning to school from vacation, 2) a lower-than-expected boost from the
Fifa World Cup matches due to the early exit of Koreas national team, 3)
amortisation of R&D expenses resulting from mobile game launches, and 4) stockoption-related expenses. As the companys monetisation phase is still at an early
level, even a modest change in revenue or expenses can affect overall earnings
substantially. The q-q decline in 2Q earnings is no cause for serious concern, in our
view. Moreover, platform revenue, which includes advertising revenue, is likely to
improve markedly in 3Q14, backed by the start of school summer vacation and the
Asian Games scheduled for September. Sporting events tend to boost overall traffic
and as the event is being held in Korea, we expect a substantial increase in
viewership.
On a positive note, platform revenue improved slightly in 2Q14 despite the q-q
decline in traffic. We had previously forecast that AfreecaTVs platform revenue will
grow faster than traffic, thanks to the increasing proportion of advertising revenue,
and the 2Q results confirmed that this trend is accelerating. But, we are also seeing
changes in the companys advertiser pool, which had mostly consisted of game
companies. Now it includes sports channels, as well as entertainment and retail
companies.
For 2014, we estimate sales growth of 21% y-y despite the negative impact from the
planned de-consolidation of the companys online game division in 2H14. We expect
the growth to mainly come from strong platform sales and rising mobile game sales.
We forecast just a slight improvement in OP margin for 2014 (+1ppt y-y) as content
cost and related costs increase, but we expect strong margin expansion from 2015.

BNP PARIBAS

26 AUGUST 2014

AfreecaTV

067160 KS

Justin Lee

EXHIBIT 18: AfreecaTV earnings forecast table


1Q13

2Q13

3Q13

4Q13

1Q14

2Q14

3Q14E

4Q14E

2013

2014E

2015E

2016E

(KRW b)

(KRW b)

(KRW b)

(KRW b)

(KRW b)

(KRW b)

(KRW b)

(KRW b)

(KRW b)

(KRW b)

(KRW b)

(KRW b)

11.7

10.9

12.8

12.7

14.3

13.9

15.1

15.0

48.1

58.3

70.3

84.1

7.9

8.3

8.7

8.7

10.3

10.3

11.9

13.5

33.6

46.1

63.4

76.9

Item sales

5.1

5.2

5.2

5.6

6.7

6.7

7.4

8.1

21.1

28.9

37.2

43.9

Ad sales

2.9

3.0

3.4

3.1

3.6

3.7

4.5

5.4

12.5

17.2

26.2

33.1

Revenue
AfreecaTV platform

3.8

2.4

4.2

3.9

4.0

3.6

3.2

1.5

14.3

12.3

6.9

7.1

Operating profit

Games

1.2

1.0

1.3

1.1

1.9

1.2

1.7

1.4

4.4

6.2

8.4

12.2

Pretax profit

0.5

0.2

(0.2)

(0.4)

1.4

0.7

1.4

1.1

0.1

4.7

7.4

11.1

Net profit

0.6

0.0

(0.2)

(0.3)

1.3

0.8

1.2

0.9

0.2

4.2

5.9

8.8

Operating margin

9.8

8.7

9.9

8.3

13.0

8.3

11.5

9.4

9.2

10.6

12.0

14.5

Pretax margin

4.4

1.6

(1.5)

(3.5)

10.0

5.0

9.4

7.5

0.1

8.0

10.6

13.2

Net margin

5.4

0.4

(1.5)

(2.5)

9.3

5.6

7.7

5.9

0.4

7.1

8.3

10.4

(2.0)

21.3

20.5

19.6

Margins (%)

Growth (q-q %)
2.7

(7.1)

18.1

(1.3)

12.7

(2.6)

8.7

(0.8)

AfreecaTV platform

16.2

4.5

5.2

0.8

17.7

0.5

15.1

13.4

Games

13.6

(35.5)

72.2

(5.6)

1.7

(10.7)

(9.9)

(53.7)

NM

(17.3)

34.4

(17.3)

76.1

(37.5)

49.5

(18.7)

(21.4)

(10.1)

20.0

11.2

22.1

28.0

17.7

18.3

Revenue

Operating profit
Growth (y-y %)
Revenue
AfreecaTV platform
Games
Operating profit

75.6

47.4

42.3

28.6

30.3

25.4

37.2

54.4

46.0

37.2

37.6

21.3

(51.9)

(41.0)

4.1

19.1

6.6

47.5

(22.8)

(62.1)

(25.7)

(14.0)

(43.7)

3.5

(30.3)

(19.4)

NM

NM

61.8

22.2

35.9

33.6

114.2

39.1

36.7

44.1

2,450

2,573

2,645

2,649

3,219

2,748

2,940

3,087

2,579

2,999

3,232

3,354

Operating metrics
Daily unique visitor ('000)

Sources: AfreecaTV; BNP Paribas estimates

Going global
In December 2013, AfreecaTV entered into a contract (multi-channel network
partnership) with YouTube, which is owned by Google (GOOG US). AfreecaTV has
established a standalone channel that uploads featured video clips by its performers.
The partnership will provide additional revenue, as the two companies will share the
ad revenue generated by the video plays. AfreecaTV entered into a revenue-sharing
scheme with YouTube and its performers also receive commissions.
We view this as positive for two reasons: 1) with additional commission, AfreecaTV
can create higher royalty for its performers and enhance the retention ratio of the
performers; and 2) it increases AfreecaTVs brand equity and could reach a wider
audience in the overseas markets.
AfreecaTV also launched a broadcasting service in 1Q14 (mobile app) and the Star
Balloon system in May in Japan. The company has secured the services of 20-30
broadcasting jockeys and they attract on average of 400-500 viewers a day. It plans
to enter the US market in 2H14 and China in the longer term.

10

BNP PARIBAS

26 AUGUST 2014

AfreecaTV

067160 KS

Justin Lee

EXHIBIT 19: AfreecaTV standalone channel on YouTube

EXHIBIT 20: AfreecaTV featured channels on YouTube

Source: YouTube

Source: YouTube

EXHIBIT 21: AfreecaTV Japan (in operation)

EXHIBIT 22: AfreecaTV USA/Taiwan (in preparation)

Source: AfreecaTV

Source: AfreecaTV

EXHIBIT 23: YY annual sales breakdown and OPM trend


YY Music (LHS)
(USD m)

Online Game (LHS)

Others (LHS)

350

Online Advertising (LHS)

(%)
50

OPM (RHS)

300
0
250
200

(50)

150

(100)

100
(150)
50
0

(200)
2009

2010

2011

2012

2013

Sources: AfreecaTV; Bloomberg; BNP Paribas

On 26 August, Twitch.tv (not listed) confirmed that it had been acquired by Amazon
(AMZN US) for USD970m. The deal will be finalized by year-end, according to its
management. The announcement was made after months of speculation that Google
(GOOG US) had offered to buy the platform. Twitch.tv was launched (spun off) in
2011 as a video game broadcasting branch of Justin.tv (not listed), which is a
personal streaming service website. It allows gamers and gaming enthusiasts to
create their own Twitch channels to either broadcast live on PC or console gameplay
or host their own video game-themed video podcast programmes for others to watch.
According to Twitch, it boasts a 55m active monthly userbase (as of July).

11

BNP PARIBAS

26 AUGUST 2014

AfreecaTV

067160 KS

Justin Lee

We believe this transaction signals that the global giants see the emergence of live
streaming, such as video game streaming and live video game watching, thus
making these areas worth venturing into. As AfreecaTV gains a global presence, we
expect it to become an attractive platform for many global Internet players.

EXHIBIT 24: AfreecaTV vs Twitch comparison


(USD m)

Value

(m)

MUV (RHS)

1,200

60.0

1,000

50.0

800

40.0

600

30.0

400

20.0

200

10.0

0.0
AfreecaTV

Twitch.tv

Note: AfreecaTVs value as of 25-August closing price; Twitch.TVs value is Amazons acquisition price; MUV as of last
reported figure
Sources: AfreecaTV; Twitch.tv; various news reports

12

BNP PARIBAS

26 AUGUST 2014

AfreecaTV

067160 KS

Justin Lee

Valuation
Focus more on subscriber value than on monetising for now
In the internet platform business, which exemplifies the long tail economy, we
believe the potential for companies to monetise hinge on their ability to grow traffic in
the early stages of their businesses. Traffic to AfreecaTV mainly stems from male
teenagers and men in their 20s. The company plans to boost traffic and market
presence starting this year by diversifying content (by airing programmes from multichannel, cable and terrestrial broadcasters), which will help it diversify user base in
terms of age and gender. For now, we advise investors to focus more on the
potential (e.g., subscriber value) than on the current monetising capability.
After a massive outperformance YTD (+203% vs. +7% for KOSPI), the stock is
trading at 47.4x FY15E P/E and 6.1x FY15E P/BV. Foreign ownership rose sharply
this year and now stands at 22%.
Our target price for AfreecaTV is derived from a DCF valuation. We use DCF
methodology to reflect AfreecaTVs fast usage/revenue growth momentum and
improving monetisation visibility.

EXHIBIT 25: AfreecaTV DCF valuation


2014E

2015E

2016E

2017E

2018E

2019E

2020E

Terminal value

(KRW b)

(KRW b)

(KRW b)

(KRW b)

(KRW b)

(KRW b)

(KRW b)

(KRW b)

58

70

84

97

110

123

136

21.3

20.5

19.6

15.1

13.2

12.4

10.4

10

14

18

24

29

34

39

EBITDA margin (%)

17.6

19.5

21.5

25.3

26.7

27.9

28.4

(Changes in working capital)

(1.1)

(1.9)

(2.2)

(2.0)

(2.0)

(2.2)

(2.0)

(Capex)

(4.4)

(5.4)

(6.2)

(6.9)

(7.5)

(8.3)

(9.1)

Capex as % of revenue (%)

7.6

7.7

7.4

7.1

6.9

6.7

6.7

(Income tax)

0.5

1.6

2.3

3.3

4.1

5.0

5.9

Free cash flow (FCF)

12

19

24

29

33

381

PV of FCF

10

14

16

18

19

261

Revenue
Change (y-y %)
EBITDA

Value

Comments

(KRW b)
Enterprise value

352

Add: net cash & financial assets

Equity value

Sum of present value of FCF


As at end-2014E

358

# of shares (m)

10.3

Fair value per share (KRW/share)

35,000

WACC calculation

Value
(%, except Beta)

Terminal growth

1.0

Risk-free rate

3.8

Risk premium

6.5

Cost of equity

9.7

Beta (x)

0.9

WACC

9.7

Sources: Bloomberg; BNP Paribas estimates

13

BNP PARIBAS

26 AUGUST 2014

AfreecaTV

067160 KS

Justin Lee

EXHIBIT 26: AfreecaTV one-year forward P/E trend

EXHIBIT 27: AfreecaTV one-year forward P/BV trend

(KRW)

(KRW)

40,000

40,000

35,000

35,000
7.0x

30,000

30,000
60.0x
25,000

25,000

50.0x

20,000

5.5x

20,000

40.0x

4.0x

15,000

30.0x

15,000

10,000

20.0x

10,000

2.5x

5,000

1.0x

5,000
0

2004

2006

2008

2010

2012

2014

2003

Sources: Bloomberg; AfreecaTV; BNP Paribas estimates

2005

2007

2009

2011

2013

Sources: Bloomberg; AfreecaTV; BNP Paribas estimates

EXHIBIT 28: AfreecaTV share price vs notable events


(KRW)
35,000
30,000

Launched new
game title
'Everybody's
Band'

'Bluewind'
acquisition

25,000
20,000

Contract with
'YouTube'

Contract with
'KBS'

Strong traffic
from Sochi
Winter Olympics
'T.Rowe
Price' stake
acquisition

Contract
with 'EBS'

15,000
Contract with general
programme channels

10,000
5,000

Aug-14

Jul-14

Jun-14

May-14

Apr-14

Mar-14

Feb-14

Jan-14

Dec-13

Nov-13

Oct-13

Sep-13

Aug-13

Jul-13

Jun-13

May-13

Apr-13

Mar-13

Feb-13

Jan-13

Sources: AfreecaTV; Bloomberg; BNP Paribas

Key risks
Key risks for AfreecaTV are: 1) quality control of content on its platform, including
retention of its performers; 2) political pressure from the government for its function
as a communication/broadcast platform; and 3) lacklustre progress of its mobile
games.
We believe the first two risks have largely eased as AfreecaTV has strengthened its
internal filtering system and created a 24-hour team to monitor all broadcast
channels. As the platform matured, overall content self-filtering by users improved
too. According to the new management (which took over in 2011), the company
manages risks related to copyrights through an internal filtering system. Similarly, to
address quality control risks, AfreecaTV has a team of 50 people, on duty for 24
hours in three shifts to monitor all broadcast channels. Management stated that any
video containing inappropriate content can be spotted and deleted within 10-15
minutes of the upload.

14

BNP PARIBAS

26 AUGUST 2014

AfreecaTV

067160 KS

Justin Lee

EXHIBIT 29: AfreecaTV foreign ownership trend

EXHIBIT 30: AfreecaTV net buy/sell trend

(%)

(KRW b)

25

30

20

20

Local institutions

Foreign investors

Retail

10
15
0
10

Sources: KRX; BNP Paribas

Aug-14

Jul-14

Jun-14

May-14

Apr-14

Mar-14

Feb-14

Jan-14

Dec-13

Nov-13

Sep-13

Jul-14

Jan-14

Jul-13

Jan-13

Jul-12

Jan-12

Jul-11

Jul-10

Jan-11

(30)

Jan-10

Jul-09

(20)

Jan-09

Oct-13

(10)

Sources: KRX; BNP Paribas

Management and company structure


AfreecaTV is headed by Mr. Su-Gil Seo, who is a 95% shareholder of Saint
International, a private investment company that acquired a 25% stake in AfreecaTV
in 2011.
Mr. Seo has a bachelors degree in aerospace engineering from Seoul National
University and an MBA from the Wharton School. He has been in the online game
industry since 2005, and previously worked as the CEO of WeMade Entertainment
(112040 KS). The board consists of: Mr. Seo, Mr. Chan-Yong Chung (in charge of
corporate strategy), Mr. Joon-Soo Ahn (who oversees the overall platform business),
a non-executive outside board member and an internal auditor. After a series of BW
issues & dilution, Saint International remains the largest shareholder and holds 20.5%
of AfreecaTV as of June 2014.

EXHIBIT 31: AfreecaTV shareholding structure


Saint
International
20.5%

T Rowe Price HK
5.9%

Others
73.6%

Source: KRX

15

BNP PARIBAS

26 AUGUST 2014

AfreecaTV

067160 KS

Justin Lee

EXHIBIT 32: AfreecaTV key executives


SG Seo
Work
experience

Education

2013 -

CY Chung
CEO, AfreecaTV

2013 -

Vice-President, AfreecaTV

2011 - 2013

CEO, Nowcom

2011 - 2013

CFO, Nowcom

2007 - 2011

CEO, Wemade Ent.

Head of Management Support, Wemade Ent.

2005 - 2006

CEO, Actoz Soft

Actoz Soft

2002 - 2005

Chief Director (Strategic Planning), SK C&C

KT Tech

2000 - 2002

CEO, iTech Style

1997 - 2000

Boston Consulting Group

1990 - 1995

Researcher, Agency for Defense Development

1995 - 1997

MBA @Wharton School, University of Pennsylvania

1986 - 1990

BA in Aerospace Engineering @ Seoul National University

BA in Business @ Myungji University

Sources: Company data; BNP Paribas

EXHIBIT 33: AfreecaTV company history


Year

Major events

1994

Established as Nowcom, operator of Nownuri PC communication network

1997

Launched Now cam, the first Internet webcam business in Korea


First profit after three years of business

1999

Launched Now web portal website

2002

Launched Luckiss.com, an Internet website that sells lottery tickets


Launched PD Box video-sharing online community

2003

Listed on the KOSDAQ


Launched 2 webboard games: Wolnam Ppong, Lucky9

2005

Received "Data Communication Company of the Year" award from the government

2006

Launched Afreeca, a multimedia personal broadcasting service

2007

Wins Technet (136540.KQ), a software company, acquired Nowcom

2008

AfreecaTV broadcasting business reaches BEP

2009

Acquired broadcasting licences for the UK Premier League and KBO (Korean Baseball Org)

Launched Tales Runner, the company's signature online game to this day

Acquired copyrights for TV, films and music streaming


2011

Nowcom and Wins Technet split


Saint International, a private investment company, acquired Nowcom
Su-Gil Seo, owner of Saint International, became CEO of Nowcom

2012
2013

Launched 4 mobile games including Monster Power and Mouse Fishing


Companys name changed to AfreecaTV
Acquired mobile game developer, Bluewind

Sources: Company data; BNP Paribas

16

BNP PARIBAS

26 AUGUST 2014

AfreecaTV

067160 KS

Justin Lee

Financial statements
AfreecaTV
Profit and Loss (KRW b) Year Ending Dec

2012A

2013A

2014E

2015E

2016E

46

48

58

70

84

Cost of sales ex depreciation

Gross profit ex depreciation

46

48

58

70

84

Revenue

Other operating income


Operating costs
Operating EBITDA

(42)

(40)

(48)

(57)

(66)

10

14

18

(3)

(3)

(4)

(5)

(6)

Goodwill amortisation

Operating EBIT

12
0

Depreciation

Net financing costs

(2)

Associates

(1)

Recurring non operating income

(2)

(1)

(1)

(1)

Non recurring items

Profit before tax

11

Tax

(1)

(2)

(2)

Profit after tax

Minority interests

Preferred dividends

Other items

Reported net profit

Non recurring items & goodwill (net)

Recurring net profit

Recurring EPS *

324

18.76

415

586

874

Reported EPS

314

18.16

403

569

848

DPS

0.00

103

126

146

175

Per share (KRW)

Growth
Revenue (%)

(3.3)

3.9

21.3

20.5

19.6

Operating EBITDA (%)

(30.5)

86.4

33.1

33.5

31.6

Operating EBIT (%)

(66.4)

334.7

39.2

36.7

44.1

Recurring EPS (%)

153.0

(94.2)

2,114.5

41.1

49.1

Reported EPS (%)

153.0

(94.2)

2,119.6

41.1

49.1

Operating performance
Gross margin inc depreciation (%)

Operating EBITDA margin (%)

8.9

16.0

17.6

19.5

21.5

Operating EBIT margin (%)

2.2

9.2

10.6

12.0

14.5

Net margin (%)

6.5

0.4

7.1

8.3

10.4

Effective tax rate (%)

1.7

(266.6)

10.9

21.0

21.0

Dividend payout on recurring profit (%)

0.0

547.7

30.4

24.8

20.0

Interest cover (x)

1.0

18.4

33.2

47.5

Inventory days

102.8

106.9

106.5

105.3

105.7

Debtor days
Creditor days

5.6

82.5

29.2

31.3

39.3

ROIC (%)

4.7

13.9

9.6

11.9

15.6

ROE (%)

10.2

0.5

10.6

13.3

17.1

ROA (%)

2.9

10.4

7.2

8.7

11.3

Operating ROIC (%)

*Pre exceptional, pre-goodwill and fully diluted

2012A

2013A

2014E

2015E

2016E

AfreecaTV platform

Revenue By Division (KRW b)

23

34

46

63

77

Games

19

14

12

Sources: AfreecaTV; BNP Paribas estimates

17

BNP PARIBAS

26 AUGUST 2014

AfreecaTV

067160 KS

Justin Lee

Financial statements
AfreecaTV
Cash Flow (KRW b) Year Ending Dec

2012A

2013A

2014E

2015E

2016E

Recurring net profit

Depreciation

Associates & minorities

Other non-cash items

Recurring cash flow

11

15

(9)

(2)

(1)

(1)

(4)

(3)

(4)

(5)

(6)

Change in working capital


Capex - maintenance
Capex - new investment
Free cash flow to equity

(6)

(2)

Net acquisitions & disposals

(6)

(2)

(1)

(2)

(2)

Dividends paid

Non recurring cash flows

(11)

(2)

7
(3)

Net cash flow


Equity finance

10

(2)

(2)

(3)

Debt finance

(11)

Movement in cash

(12)

(4)

1,418

Per share (KRW)


Recurring cash flow per share
FCF to equity per share
Balance Sheet (KRW b) Year Ending Dec

638

359

800

1,080

(614)

(159)

455

467

708

2012A

2013A

2014E

2015E

2016E

Working capital assets

17

16

18

22

27

Working capital liabilities

(9)

(10)

(12)

(14)

(16)

Net working capital

10

Tangible fixed assets

12

11

14

14

17

Operating invested capital

27

20

17

20

22

Goodwill

Other intangible assets

10

11

Investments

16

16

19

20

Other assets

Invested capital

42

44

48

54

61

Cash & equivalents

(6)

(4)

(5)

(6)

(8)

Short term debt

Long term debt *

(1)

Net debt
Deferred tax
Other liabilities

11

Total equity

32

37

41

47

55

Minority interests

Invested capital

42

44

48

54

61

* includes convertibles and preferred stock which is being treated as debt

Per share (KRW)


Book value per share

3,331

3,850

3,991

4,562

5,356

Tangible book value per share

2,638

2,975

3,095

3,577

4,273

Financial strength
Net debt/equity (%)

(4.0)

17.8

14.9

13.1

8.6

Net debt/total assets (%)

(2.3)

11.4

9.5

8.4

5.6

2.5

1.2

1.3

1.3

1.4

1.6

34.9

45.3

57.9

2012A

2013A

2014E

2015E

2016E

85.7

1481.7

66.9

47.4

31.8

107.9

1865.4

84.2

59.7

40.0

88.5

1530.6

69.0

48.9

32.8

Current ratio (x)


CF interest cover (x)
Valuation
Recurring P/E (x) *
Recurring P/E @ target price (x) *
Reported P/E (x)
Dividend yield (%)

0.0

0.4

0.5

0.5

0.6

43.6

77.4

34.8

25.7

19.6

(45.3)

(174.8)

61.0

59.6

39.2

8.3

7.2

7.0

6.1

5.2

Price/tangible book (x)

10.5

9.3

9.0

7.8

6.5

EV/EBITDA (x) **

55.7

54.2

31.4

22.7

17.0

EV/EBITDA @ target price (x) **

70.1

68.1

39.3

28.4

21.3

6.3

6.3

6.1

5.4

4.8

P/CF (x)
P/FCF (x)
Price/book (x)

EV/invested capital (x)


* Pre exceptional, pre-goodwill and fully diluted

** EBITDA includes associate income and recurring non-operating income

Sources: AfreecaTV; BNP Paribas estimates

18

BNP PARIBAS

26 AUGUST 2014

AfreecaTV

067160 KS

Justin Lee

Disclaimers and Disclosures


APPENDIX
DISCLAIMERS AND DISCLOSURES APPLICABLE TO NON-US BROKER-DEALER(S): BNP Paribas Securities Korea Co Ltd
ANALYST(S) CERTIFICATION
Justin Lee, BNP Paribas Securities Korea Co Ltd, +822 2125 0544, justin.lee@asia.bnpparibas.com.
The analyst(s) or strategist(s) herein each referred to as analyst(s) named in this report certify(ies) that (i) all views expressed in this report accurately
reflect the personal view of the analyst(s) with regard to any and all of the subject securities, companies or issuers mentioned in this report; and (ii) no part
of the compensation of the analyst(s) was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by the research
analyst herein.
Analysts mentioned in this disclaimer are employed by a non-US affiliate of BNP Paribas Securities Corp., and are not registered/ qualified pursuant to NYSE
and/or FINRA regulations.

IMPORTANT DISCLOSURES REQUIRED IN THE UNITED STATES BY FINRA RULES AND OTHER JURISDICTIONS
"BNP Paribas is the marketing name for the global banking and markets business of BNP Paribas Group. No portion of this report was prepared by BNP
Paribas Securities Corp (US) personnel, and it is considered Third-Party Affiliate research under NASD Rule 2711. The following disclosures relate to
relationships between companies covered in this research report and the BNP entity identified on the cover of this report, BNP Securities Corp., and other
entities within the BNP Paribas Group (collectively, "BNP Paribas").
The disclosure column in the following table lists the important disclosures applicable to each company that has been rated and/or recommended in this
report:
Company

Ticker

N/A

N/A

Disclosure (as applicable)


N/A

BNP Paribas represents that:


1. Within the past year, it has managed or co-managed a public offering for this company, for which it received fees.
2. It had an investment banking relationship with this company in the last 12 months.
3. It received compensation for investment banking services from this company in the last 12 months.
4. It expects to receive or intends to seek compensation for investment banking services from the subject company/ies in the next 3 months.
5. It beneficially owns 1% or more of any class of common equity securities of the subject company.
6. It makes a market in securities in respect of this company.
7. The analyst(s) or an individual who assisted in the preparation of this report (or a member of his/her household) has a financial interest position in
securities issued by this company. The financial interest is in the common stock of the subject company, unless otherwise noted.
8. The analyst (or a member of his/her household) is an officer, director, or advisory board member of this company or has received compensation from the
company.

IMPORTANT DISCLOSURES REQUIRED IN KOREA


The disclosure column in the following table lists the important disclosures applicable to each Korea listed company that has been rated and/or
recommended in this report:
Company
AfreecaTV

Ticker
067160 KS

Price (as of 25-Aug-2014 closing price)


KRW27,800.00

Interest
N/A

1.

The performance of obligations of the Company is directly or indirectly guaranteed by BNP Paribas Securities Korea Co. Ltd (BNPPSK) by means of
payment guarantees, endorsements, and provision of collaterals and/or taking over the obligations.
2. BNPPSK owns 1/100 or more of the total outstanding shares issued by the Company.
3. The Company is an affiliate of BNPPSK as prescribed by Item 3, Article 2 of the Monopoly Regulation and Fair Trade Act.
4. BNPPSK is the financial advisory agent of the Company for the Merger and Acquisition transaction or of the Target Company whereby the size of the
transaction does not exceed 5/100 of the total asset of the Company or the total number of outstanding shares.
5. BNPPSK has taken financial advisory service regarding listing to the Company within the past 1 year.
6. With regards to the tender offer initiated by the Company based on Item 2, Article 133 of the Financial Investment Services and Capital Market Act,
BNPPSK acts in the capacity of the agent for the tender offer designated either by the Company or by the target company, provided that this provision
shall apply only where tender offer has not expired.
7. The listed company which issued the stocks in question in case where 40 days has not passed since the new shares were listed from the date of entering
into arrangement for public offering or underwriting-related agreement for issuance of stocks
8. The Company that has signed a nominated advisor contract with BNPPSK as defined in Item 2 of Article 8 of the KONEX Market Listing Regulation.
9. The Company is recognized as having considerable interests with BNPPSK in relation to No.1 to No. 8.
10. The analyst or his/her spouse owns (including delivery claims of marketable securities based on legal regulations and trading and misc. contracts) the
following securities or rights (hereinafter referred to as Securities, etc. in this Article) regardless of whose name is used in the trading.
1) Stocks, bond with stock certificate, and certificate of pre-emptive rights issued by the Company whose securities dealings are being solicited.
2) Stock options of the Company whose securities dealings are being solicited.
3) Individual stock future, stock option, and warrants that use the stocks specified in Item 1) as underlying.

GENERAL DISCLAIMER
This report was produced by BNP Paribas Securities Korea Co Ltd, member company(ies) of the BNP Paribas Group.
This report is for the use of intended recipients only and may not be reproduced (in whole or in part) or delivered or transmitted to any other person without
our prior written consent. By accepting this report, the recipient agrees to be bound by the terms and limitations set forth herein.
This report does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of
individual clients. Customers are advised to use the information contained herein as just one of many inputs and considerations prior to engaging in any
trading activity. This report does not constitute a prospectus or other offering document or an offer or solicitation to buy or sell any securities or other

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investments. This report is not intended to provide the sole basis of any evaluation of the subject securities and companies mentioned in this report.
Information and opinions contained in this report are published for reference of the recipients and are not to be relied upon as authoritative or without the
recipients own independent verification, or taken in substitution for the exercise of judgment by the recipient. Additionally, the products mentioned in this
report may not be available for sale in certain jurisdictions.
As an investment bank with a wide range of activities, BNP Paribas may face conflicts of interest, which are resolved under applicable legal provisions and
internal guidelines. You should be aware, however, that BNP Paribas may engage in transactions in a manner inconsistent with the views expressed in this
document, either for its own account or for the account of its clients.
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Sydney NSW 2000. BNP Paribas Sydney Branch is licensed under the Banking Act 1959 and the holder of Australian Financial Services Licence no. 238043 and
therefore subject to regulation by the Australian Securities & Investments Commission in relation to delivery of financial services. By accepting this document
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or sale of the securities described herein in Canada will be made only under an exemption from the requirements to file a prospectus with the relevant
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This research publication is not an offer of securities in Indonesia. Some of the securities referred to in this research publication have not been registered
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Republic of Indonesia or to Indonesian citizens through a public offering or in circumstance which constitutes an offer within the meaning of Indonesian
capital market laws and regulations.
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registered as a financial instruments firm in Japan, to certain financial institutions defined by article 17-3, item 1 of the Financial Instruments and Exchange
Law Enforcement Order. BNP Paribas Securities (Japan) Limited is a financial instruments firm registered according to the Financial Instruments and
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disclosed according to the Financial Instruments and Exchange Law of Japan.
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the date hereof and are subject to change. BNP Paribas Capital (Malaysia) Sdn Bhd has no obligation to update its opinion or the information in this research
report. This publication is strictly confidential and is for private circulation only to clients of BNP Paribas Capital (Malaysia) Sdn Bhd. This publication is
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reproduced in any form by any means or (ii) redistributed or passed on, directly or indirectly, to any other person in whole or in part, for any purpose
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certain interests in the acquisition or disposal of, securities referred to in this report. For Institutional and Accredited Investors in Singapore, please contact
BNP Paribas Securities (Singapore) Ptd Ltd (company registration number: 199801966C; address: 10 Collyer Quay, 34/F Ocean Financial Centre, Singapore
049315; tel: (65) 6210 1288; fax: (65) 6210 1980) for all matters and queries relating to this report.
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are licensed members of Johannesburg Stock Exchange and are authorised Financial Services Providers and subject to regulation by the Financial Services
Board. BNPP Cadiz does not expressly or by implication represent, recommend or propose that the financial products referred to in this report are
appropriate to the particular investment objectives, financial situation or particular needs of the recipient.
Switzerland: This report is intended solely for customers who are Qualified Investors as defined in article 10 paragraphs 3 and 4 of the Swiss Federal Act
on Collective Investment Schemes of 23 June 2006 (CISA) and the relevant provisions of the Swiss Federal Ordinance on Collective Investment Schemes of 22
November 2006 (CISO). Qualified Investors includes, among others, regulated financial intermediaries such as banks, securities dealers, fund management
companies and asset managers of collective investment schemes, regulated insurance companies as well as pension funds and companies with professional
treasury operations. This document may not be suitable for customers who are not Qualified Investors and should only be used and passed on to Qualified
Investors. For specification purposes, a Swiss Corporate Customer is a Client which is a corporate entity, incorporated and existing under the laws of
Switzerland and which qualifies as Qualified Investor as defined above." BNP Paribas (Suisse) SA is authorised as bank and as securities dealer by the Swiss
Federal Market Supervisory Authority FINMA. BNP Paribas (Suisse) SA is registered at the Geneva commercial register under No. CH-270-3000542-1. BNP
Paribas (Suisse) SA is incorporated in Switzerland with limited liability. Registered Office: 2 place de Hollande, CH-1204 Geneva.

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Taiwan: Information on securities that trade in Taiwan is distributed by BNP Paribas Securities (Taiwan) Co., Ltd. Such information is for your reference only.
The reader should independently evaluate the investment risks and is solely responsible for their investment decision. Information on securities that do not
trade in Taiwan is for informational purposes only and is not to be construed as a recommendation or a solicitation to trade in such securities. BNP Paribas
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quoted or used by the public media without the express written consent of BNP Paribas.
Thailand: Research relating to Thailand and Thailand based issuers is produced pursuant to an arrangement between BNP PARIBAS (BNPP) and Finansia
Syrus Securities Public Company Limited (FSS). FSS International Investment Advisory Securities Co Ltd (FSSIA) prepares and distributes research under
the brand name BNP PARIBAS/FSS. BNPP is not an affiliate of FSSIA or FSS. FSS also publishes a different research product under the brand name
FINANSIA SYRUS, which is prepared by research analysts who are not part of FSSIA and who may cover the same securities, issuers, or industries that are
the subject of this report. The ratings, recommendations, and views expressed in this report may differ from the ratings, recommendations, and views
expressed by other research analysts or research teams employed by FSS. This report is being distributed outside Thailand by members of BNP Paribas.
Turkey: This report is being distributed in Turkey by TEB Investment (TEB YATIRIM MENKUL DEGERLER A.S., Teb Kampus D Blok Saray Mah. Kucuksu Cad.
Sokullu Sok., No:7 34768 Umraniye, Istanbul, Turkey, Trade register number: 358354, www.tebyatirim.com.tr) and outside Turkey jointly by TEB Investment
and BNP Paribas. Notice Published in accordance with Communiqu Regarding the Principles on Investment Consultancy Activities and the Investment
Consultancy Institutions Series: V, No: 55 issued by the Capital Markets Board. The investment related information, commentary and recommendations
contained herein do not constitute investment consultancy services. Investment consultancy services are provided in accordance with investment
consultancy agreements executed between investors and brokerage companies or portfolio management companies or non-deposit accepting banks. The
commentary and recommendations contained herein are based on the personal views of the persons who have made such commentary and
recommendations. These views may not conform to your financial standing or to your risk and return preferences. Therefore, investment decisions based
solely on the information provided herein may fail to produce results in accordance with your expectations.
United States: This report may be distributed in the United States only to U.S. Persons who are major U.S. institutional investors (as such term is defined in
Rule 15a-6 under the Securities Exchange Act of 1934, as amended) and is not intended for the use of any person or entity that is not a major U.S.
institutional investor. U.S persons who wish to effect transactions in securities discussed herein must do so through BNP Paribas Securities Corp., a USregistered broker dealer and member of FINRA, SIPC, NFA, NYSE and other principal exchanges.
Certain countries within the European Economic Area: This document may only be distributed in the United Kingdom to eligible counterparties and
professional clients and is not intended for, and should not be circulated to, retail clients (as such terms are defined in the Markets in Financial Instruments
Directive 2004/39/EC (MiFID)). This document will have been approved for publication and distribution in the United Kingdom by BNP Paribas London
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office at 16 boulevard des Italiens, 75009 Paris. BNP Paribas London Branch (registered office: 10 Harewood Avenue, London NW1 6AA; tel: [44 20] 7595 2000;
fax: [44 20] 7595 2555) is authorised by the Autorit de Contrle Prudentiel and the Prudential Regulation Authority and subject to limited regulation by the
Financial Conduct Authority and Prudential Regulation Authority. Details about the extent of our authorisation and regulation by the Prudential Regulation
Authority, and regulation by the Financial Conduct Authority are available from us on request.This report has been approved for publication in France by BNP
Paribas, a credit institution licensed as an investment services provider by the Autorit de Contrle Prudentiel whose head office is 16, Boulevard des Italiens
75009 Paris, France. This report is being distributed in Germany either by BNP Paribas London Branch or by BNP Paribas Niederlassung Frankfurt am Main,
regulated by the Bundesanstalt fr Finanzdienstleistungsaufsicht (BaFin).
Other Jurisdictions: The distribution of this report in other jurisdictions or to residents of other jurisdictions may also be restricted by law, and persons into
whose possession this report comes should inform themselves about, and observe, any such restrictions. By accepting this report you agree to be bound by
the foregoing instructions. This report is not directed to, or intended for distribution to or use by, any person or entity that is a citizen or resident of or
located in any locality, state, country, or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.
All research reports are disseminated and available to all clients simultaneously through our internal client websites. For all research available on a
particular stock, please contact the relevant BNP Paribas research team or the author(s) of this report.
Additional Disclosures
Target price history, stock price charts, valuation and risk details, and equity rating histories applicable to each company rated in this report is available in
our most recently published reports available on our website: http://eqresearch.bnpparibas.com, or you can contact the analyst named on the front of this
note or your BNP Paribas representative.
All share prices are as at market close on 25 August 2014 unless otherwise stated.

RECOMMENDATION STRUCTURE
Stock Ratings
Stock ratings are based on absolute upside or downside, which we define as (target price* - current price) / current price.
BUY (B). The upside is 10% or more.
HOLD (H). The upside or downside is less than 10%.
REDUCE (R). The downside is 10% or more.
Unless otherwise specified, these recommendations are set with a 12-month horizon. Thus, it is possible that future price volatility may cause a
temporary mismatch between upside/downside for a stock based on market price and the formal recommendation.
* In most cases, the target price will equal the analyst's assessment of the current fair value of the stock. However, if the analyst doesn't think the market will
reassess the stock over the specified time horizon due to a lack of events or catalysts, then the target price may differ from fair value. In most cases, therefore, our
recommendation is an assessment of the mismatch between current market price and our assessment of current fair value.

Industry Recommendations
Improving (): The analyst expects the fundamental conditions of the sector to be positive over the next 12 months.
Stable (previously known as Neutral) (): The analyst expects the fundamental conditions of the sector to be maintained over the next 12
months.
Deteriorating (): The analyst expects the fundamental conditions of the sector to be negative over the next 12 months.
Country (Strategy) Recommendations
Overweight (O). Over the next 12 months, the analyst expects the market to score positively on two or more of the criteria used to determine
market recommendations: index returns relative to the regional benchmark, index sharpe ratio relative to the regional benchmark and index
returns relative to the market cost of equity.
Neutral (N). Over the next 12 months, the analyst expects the market to score positively on one of the criteria used to determine market
recommendations: index returns relative to the regional benchmark, index sharpe ratio relative to the regional benchmark and index returns
relative to the market cost of equity.
Underweight (U). Over the next 12 months, the analyst does not expect the market to score positively on any of the criteria used to determine
market recommendations: index returns relative to the regional benchmark, index sharpe ratio relative to the regional benchmark and index
returns relative to the market cost of equity.

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RATING DISTRIBUTION (as at 26 August 2014)


Total BNP Paribas coverage universe

668

Investment Banking Relationship

(%)

Buy

343

Buy

5.80

Hold

232

Hold

4.70

93

Reduce

1.10

Reduce

Should you require additional information concerning this report please contact the relevant BNP Paribas research team or the author(s) of this report.
2014 BNP Paribas Group

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