The author is an analyst of NH Investment & Securities. He can be reached at kyeongkeun.kang@nhqv.com. — Ed.
Considering its net cash holdings, stakes in subsidiaries, and real estate assets, we view ESTsoft’s recent share price drop as being excessive. The firm’s AI and metaverse businesses, including virtual humans, ROUNZ, and NFTs, should soon generate tangible results.
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Recent share price retreat excessive
ESTsoft’s share price has fallen 55% from its peak at the end of 2021 (market cap of W104.9bn as of Jun 28). As of end-1Q22, the company’s assets include net cash of W32.3bn, office buildings in Seocho and Jeju, and a 52% stake in listed subsidiary ZUM Internet worth W56.8bn. When also considering the value of its 81% stake in EST Security (whose IPO is slated for 2023; pre-IPO value of W120bn and target market cap of W250bn) and 60% stake in ROUNZ, ESTsoft’s recent share price drop seems excessive.
While most AI and metaverse-related S/W players have a low earnings visibility and unstable financial structures, ESTsoft boasts a virtuous cycle of reinvesting stable cashflow from its main businesses (S/W, games) into its AI and metaverse businesses.
Business performance in AI and metaverse fields to soon become tangible
Through the establishment of AI Plus Lab, ESTsoft has secured proprietary technology to produce virtual humans based on AI voice and video machine learning technology. AI clones of YTN anchor Sang-wook Byun and Hunet lecturer Min-young Lee were produced using this technology. In February, the company secured the IP of CLASS:y, a girl group formed through the audition program My Teenage Girls, obtaining the right to produce virtual clones of the group and related global business rights. By end-2022, the company plans to secure around 20 more IPs in the fields of entertainment, commerce, education, and sports to diversify its revenue models.
Additional businesses deserving attention include ROUNZ, a virtual glasses fitting shopping platform that combines AI and AR technologies, and the NFT business, which produces both games based on its own IPs in conjunction with Korbit (virtual asset exchange platform) and NFT artwork.
