Internet industry Q&A
Overweight on Internet sector: Top pick: NHN (035420 KS) The
Internet industry is projected to continue its growth based on existing
business models. Portal services are gaining significance as information &
knowledge tools, and web contents are increasingly accepted as consumer
staples. We maintain our Overweight on the Internet sector, with NHN as
our top pick. We maintain our BUY ratings on NHN (035420 KS) at fair value
of W344,000 and Daum (035720 KS) at W76,000.
Jitters over regulatory risks present BUY opportunity The regulatory
risks triggered by the Fair Trade Commission’s investigation now involve
issues and controversies on the Internet business law, the Press Arbitration
Act, illegal board games, and portal restriction TFT. The seemingly
exaggerated concern over the portals has mainly due to the absence of the
business act. And the in-depth discussion and consensus in the process of
the preparation should be positive in defining the business area. We regard
each of the issues as not significant enough to hinder the industry growth,
and see the weak share prices due to regulatory risks as an opportunity to
go overweight on the sector.
Search demand grows alongside increasing keyword coverage; search ad
market to keep growing The average monthly search query rose 7.9%
QoQ to 5.2bn in 1Q08. The figures have been on the steady rise and even
outpaced the growth of Internet users after hitting the bottom at 4.34bn in
2Q07. While the total amount of page view (PV) is down as users’ area of
interests has become segmented, search PV, in particular, keeps rising. As
of April, Naver’s search PV increased 9.6% YoY to 5.49bn pages and Daum’s
search PV also grew 30.6% YoY to 1.02bn pages. These were due to increase
in keyword coverage and greater search demand. The Internet search ad
market should continue to grow going forward.

Contents
Valuation and Investment Recommendation
6
Question 1) Is search ad market growth slowing down?
10
Question 2) If the economy slows down, will the market for online
Question 2) ads feel the pinch?
18
Question 3) Are regulations on Internet industry toughening?
22
Question 4) How will the issue of online gambling games be resolved?
25
Question 5) Will MS take over Yahoo!? What’s the impact on
Question 5) domestic market?
30
NHN (035420 KS)
Regulatory risk offers Overweight chance
32
Daum Communications (035720 KS)
Search service upgraded
34