KGI Securities has started coverage on Winking Studios : WKS 0% with an “outperform” rating on the notion that the Acer-backed game-art outsourcing company is poised to expand its market share.

In a report on Monday (Apr 29), analyst Alyssa Tee said she anticipated Winking’s top and bottom line to be driven by growth in the gaming market across various regions, as well as the company’s inorganic expansion plans.

The company on Apr 10 announced plans to raise up to S$27 million by placing out new shares at S$0.25 apiece.

Assuming all 108 million shares are placed out, KGI has a discounted cash flow-derived price target of S$0.34 post-full dilution, and S$0.47 on pre-dilution assumptions.

Tee said the implied valuation is based on “conservative assumptions” including a cost of equity of 12 per cent and a 2 per cent terminal growth rate.

The analyst is positive on Winking’s FY2023 financials which “exceeded expectations with robust performance growth”.

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In her view, revenue growth for the fiscal year was “impressive” overall, with the game development segment witnessing a “remarkable” year-on-year surge, due to expanded business operations with existing clients and the acquisition of projects from new customers.

Tee also sees the group’s improved gross profit margins as an indicator of enhanced operational efficiency and profitability.

She, however, remained cognisant of an uptick in operating expenses related to the company’s recent initial public offering.

“Despite these increased expenditures, Winking’s strong revenue growth and improved gross profit margins underscore its overall financial health and strategic trajectory,” noted the analyst.

“As the company progresses with its expansion plans and experiences enhanced revenue growth driven by the expansion of its art outsourcing segment and increased sales from its business development team, we anticipate this positive trend to persist and reflect in the FY2024 revenue figures.” 

KGI projects Winking to turn in an FY2024 revenue of about US$37 million, bringing its profit after tax and minority interests for the full year to US$3.9 million.

Dividend per share for the period is projected to come in at S$0.006, translating to a dividend yield of 2.4 per cent.

Shares of Winking were trading flat at S$0.255 as at 1.42 pm on Tuesday.