To The Moon

Winking Studios Limited. Winking Studios is the third largest art outsourcing studio in Asia and the fourth largest in the world, The company provides a range of services including 2D and 3D modeling, game development, and animation, servicing renowned game developers such as Ubisoft, Tencent, and NetEase. With operations across Asia and a growing global footprint, Winking ‘s focus on high-quality digital art assets and development services positions it to benefit from the increasing demand for outsourced game art services.

Financial performance. In 1H2024, Winking reported revenue of US$15.2m, reflecting a 7.1% yoy growth. This was primarily driven by strong contributions from the Art Outsourcing and Game Development segments, with new contracts in Japan and South Korea. Gross profit decreased slightly by 2.8% yoy to US$4.2m, with gross profit margin decreasing from 30.7% to 27.9%. This was mainly impacted by the deferment of various projects to 2H2024 due to customers’ requirements and the integration of newly acquired studios. Excluding these integration effects, gross margin remained stable at 30.0%. Net profit fell by 28.0% yoy to US$0.9m, impacted by increased marketing and promotional expenses, along with ongoing listing expenses. Adjusted for one-off expenses, the Group’s adjusted net profit stood at US$1.2m, a decrease of 34.1% yoy. As of 30 June 2024, Winking is in a net cash position of US$11.6m in cash and no borrowings, representing approximately 10% of its market capitalization.

Investment Thesis

1) Inorganic Growth. Beyond organic growth driven by Winking’s training and hiring efforts, acquisitions are a key growth driver. Since its IPO, the company has expanded geographically and boosted client capacity with the acquisitions of On Point Creative in Taiwan and Pixelline Production in Malaysia. In July 2024, the company raised S$26.5m through a placement, which will be allocated primarily for strategic acquisitions.

2) Dual Listing on London Stock Exchange. Winking’s dual listing on the LSE will provide Winking exposure to a broader investor base, further supporting Winking’s future growth plans. We anticipate acquisitions to follow.

3) Backing by Acer Group. Acer Group’s majority stake of 64.2% in Winking Studios not only strengthens Winking’s operational capabilities but also opens doors to Acer’s extensive network in the global gaming and art outsourcing industries. Leveraging Acer’s resources, Winking collaborates on innovative projects such as AI-driven 3D animation software and the conversion of classic titles for Acer’s True Game platform. This synergy positions Winking as a growth leader in the rapidly expanding gaming sector, enhancing its scalability and market penetration across developed and emerging markets

Market outlook. According to an independent market report by China Insights Industry Consultancy Limited, the global gaming market is projected to grow at a compounded annual growth rate (CAGR) of 8.9%, reaching US$317.6b by 2027, driven by increasing popularity of online games, esports and immersive gaming experiences. The demand for outsourcing art services is projected to grow at a CAGR of 13.4%, reaching US$6.3b by 2027. As one of the largest game art outsourcing companies, Winking is well-positioned to capture this growth.

Risks. A significant portion of Winking’s revenue is denominated in various currencies, making the company vulnerable to exchange rate fluctuations, potentially impacting profitability. Additionally, the company’s aggressive acquisition strategy poses integration risks, particularly in maintaining operational efficiency and preserving profit margins during the initial stages of mergers.

Optimistic Outlook – Winking’s Studios growth trajectory is supported by a robust acquisition pipeline, enhanced by funds raising through the recent placement and anticipated benefits from the dual listing. With the company’s strong financial position and focus on expanding its global footprint, we are optimistic on the company.