The author is an analyst of NH Investment & Securities. He can be reached at email@example.com. — Ed.
From this year, the fruits of ESTsoft’s AI and metaverse business profit models (including entertainment, shopping, and commerce ventures) are to become more tangible. Accordingly, its shares appear underappreciated versus those of its AI and metaverse S/W peers.
AI and metaverse-related earnings to become more visible
From this year, the fruits of ESTsoft’s AI and metaverse-related ventures are to become more tangible. The company established AI Plus Lab in Jun 2017 to conduct R&D in the fields of virtual humans, commerce, fintech, and security. Based on AI voice and video machine learning technology, the firm has secured original technology for producing virtual humans. It has also launched ROUNZ, a virtual fitting glasses shopping platform that combines AI and AR technologies.
From this year, ESTsoft will engage in metaverse business development using AI Persona technology. In order to diversify its revenue model, the company plans to secure about 20 IPs in the fields of entertainment, shopping, education, commerce, and sports by the end of this year. Cumulative downloads of ROUNZ exceeded 500,000 as of the end of last year, and monthly MAU has been showing triple-digit y-y growth. The company’s current goal is to advance into B2B business and lay the foundation for the eyewear platform by expanding gross merchandise volume (GMV).
Excessively undervalued compared to peers
We view ESTsoft’s shares as being undervalued compared to peers in the field of AI and metaverse S/W. While its peer group trades at a 2022F P/S of 29.3x, ESTsoft’s shares are trading at a 2022F P/E of 23.8x and a P/S of 1.6x. We point out that that ESTsoft has a positive cycle of reinvesting its cash stably generated from its main business (S/W, games) into fields of AI and metaverse.
Considering the establishment of a roadmap for the metaverse business, the discount compared to peers appears excessive. ESTsoft’s 2022F net cash amounts to W22.0bn. Its stake (52%) in ZUM Internet, a listed subsidiary, is worth W61.6bn. When also taking into account EST Security (81% stake; estimated market cap of W200~300bn), which is known to be pursuing an IPO in 2023, it is our judgement that the current metaverse and AI sector values ？？are not being properly reflected in ESTsoft’s share price.