Company Update: Winking Studios Limited
Company Update: 26 August 2024
Growth through acquisition
• Continued M&A strategy to drive inorganic growth. Since its IPO, Winking Studios has strategically expanded its presence in Asia through the acquisition of two art outsourcing studios in Taiwan and Malaysia. This aligns with the company’s broader strategy of utilizing mergers and acquisitions to strengthen its position as a market leader in the art outsourcing industry. Its successful placement of new shares further supports its ongoing efforts to grow its market position through strategic acquisitions.
• Organic growth in the Japanese market. 1H24 revenue grew 7.1% YoY to US15.2mn from US$14.2mn in 1H23, driven by a surge in orders from both its Art Outsourcing and Game Development segments. Notably, the company’s business development efforts in Japan have yielded significant results, with revenue from this region increasing nearly threefold to US$1.5mn in the Art Outsourcing segment. This growth has contributed to a more balanced geographical revenue mix, strengthening the company’s resilience against potential economic fluctuations.
• Strategic dual-listing on the London Stock Exchange (LSE). Winking Studios is currently pursuing a dual-listing on LSE, which would provide several advantages. Fungible share transfers between the Singapore Exchange (SGX) and LSE would offer greater flexibility for shareholders in both markets. This could potentially increase trading volume and enhance market liquidity.
1H24 financial review
Winking Studios’ revenue grew by 7.1% YoY in 1H24, reaching US$15.23mn. The increase was primarily driven by growth in the Art Outsourcing Segment by 6.6%, US$0.79mn to US$12.63mn and Game Development Segment by 8.1%, US$0.19mn to US$2.49mn.
APAC art outsourcing market is experiencing rapid growth.
Driven by the increasing demand for cost-effective, high-quality solutions from game development companies. The market is projected to reach US$4.5bn by 2027, with a CAGR of 14.4%.
Valuation & Action
We recommend an OUTPERFORM rating for Winking Studios with a revised target price of S$0.35, based on a DCF analysis. This valuation incorporates a terminal growth rate of 2.0% and a cost of equity of 11.9%.
Risks
Exposure to currency fluctuations due to denomination in USD, margin pressure due to competition and lower-than-expected new order wins.
