[THE INVESTOR] Naver’s valuation is nearing the lowest level ever as its margins deteriorate from burgeoning costs, said Hanwha Investment and Securities. The securities firm maintained a “buy” recommendation and 1 million won (US$924.39) target price. 

Its second-quarter revenue will rise 16.6 percent on-year to 1.32 trillion won but despite the significant growth in revenue, operating profit will decline to 275 billion won. Costs of developing and managing platforms has surged in the previous quarter and will continue to weigh down the company while marketing costs will remain high for Naver Pay. Although profits are unlikely to hike, the internet giant will be able to grow across sectors, and it will maintain sharp growth on the back of advance in shopping section’s search advertisements, said analyst Kim So-hye.

Its fintech business will show results first in Japan or Taiwan, rather than in Korea, and while the business may not be able to contribute to its short-term earnings, it will boost investor sentiments. Considering that its valuation has reached its lowest ever, at 25 times its price-earnings ratio, its stock price is not likely to slide further, said Kim, adding that the stock price will regain only when the risks from regulations are alleviated and additional revenue, enough to offset declining margin, is generated. 

By Hwang You-mee (glamazon@heraldcorp.com)