UOB Kay Hian: Winking Studios (WKS SP/ BUY / TP S$0.38)

Analyst: Heidi Mo (UOBKH)

*1H24 earnings below expectations* WKS reported 1H24 revenue of US$15m (+7% yoy) and core net profit of US$1.2m (-34% yoy), forming 47% and 28% of our full year forecasts respectively.

Core earnings miss came from weaker margins (-3ppt yoy) from post-acquisition integration and higher marketing exp (+86% yoy). Excluding acquisitions, GPM was stable yoy at 30%.

*Revenue grew 11% yoy in local currencies* from increased orders across both Art Outsourcing (+7% yoy) and Game Development (+8% yoy) segments.

*Robust 2H24 pipeline* with ~US$10m of indicative bookings as of 13 Aug to be fulfilled by end-24.

*S$26.5m net proceeds from Jul placement to fund future acquisitions* WKS has completed 2 earnings-accretive acquisitions in 1H24. We expect a larger acquisition upcoming to boost 2025-26 earnings.

*Exploring dual listing on LSE's AIM* which will provide WKS access to a more diverse investor base and additional funding source. Its LSE-listed peer, Keywords Studios has also reportedly agreed to a takeover bid implying a >100x PE valuation, a positive for WKS.

*Maintain BUY with higher TP of S$0.38,* pegged to 22x 2025F PE. WKS is currently trading at a deep 50% discount of 15x vs peers’ average of 29x despite its higher net margin and ROE.