MIDAS SHARE TIPS: Video games company Winking Studios has set its sights on earnings growth

When Keyword Studios listed on Aim in 2013, the company was valued at £49 million and shares changed hands at £1.23 each. Two months ago, Keyword was acquired for £2.1 billion, equivalent to £24.50 per share.

Providing video game services – from music and art production to translations into dozens of languages ​​– Keyword grew 40-fold during its 11 years on Aim and rewarded shareholders handsomely.

Winking Studios hopes to deliver a similar sparkle. Based in Asia, Winking helps game companies with art production: developing ideas, creating characters, building 3D monsters and buildings, and making images look nice. The company joined Aim last month at a price of 15 cents. Shares have risen to 18 cents and should continue in that vein as founder Johnny Jan expands and develops the business.

Jan, now 48, was a gaming fanatic from an early age and founded his first company in 1997, which spawned Winking Studios in 2004. The company has seen revenues and profits steadily increase over the past two decades working on top games such as Assassin’s Creed, FIFA, Call Of Duty and Genshin Impact, one of the world’s most popular mobile games.

Producers of these titles are attracted to Winking for two reasons. Firstly the quality of the artwork and secondly the prices charged compared to competitors.

The company, headquartered in Singapore with offices in Taiwan, Malaysia and China, has more than 800 employees. Most are highly educated, but earn much lower salaries than their Western counterparts.

That means Jan can offer artwork services at prices two or three times lower than those of European or US operators – an increasingly attractive proposition as games manufacturers try to cut costs.

Video gaming is a huge industry, worth almost £200 billion, around twice the size of the film and music sectors combined. Once limited to mainly teenage boys, gaming is now played by young and old, men and women.

Demographics are not the only change affecting this sector. In the past, enthusiasts would buy a game, plug it into their computer or console and play until they got bored. Today, games are downloaded electronically and producers provide regular updates, creating a steady stream of work for Winking Studios, with almost half of the group’s revenue generated by existing titles.

Winking also specializes in games for mobile phones, the fastest growing part of the market.

Mobile sector revenues already account for more than a quarter of all sales and are expected to deliver annual growth of ten percent or more between now and 2028.

Outsourcing is another major trend in this industry, with game publishers bringing in external specialists to reduce costs and gain competitive advantage.

Jan is very ambitious. Revenues are expected to rise by around 15 percent to $38 million (about £30 million) between now and 2026, while profits are expected to rise from $700,000 to almost $4 million, with more to rise in later years to follow. He would also like to pay dividends. Next year it will start small at one percent, but steadily increase as the company grows.

Just like Keyword, acquisitions will play a key role in Winking’s development and here Jan has an ace up his sleeve, in the form of the Taiwanese computer giant Acer.

This multibillion-dollar company, eager to expand into the entertainment market, took a major stake in Winking two years ago and now owns 62 percent of it. Although this leaves fewer shares for other investors, Acer has a lot of money and would like to support Jan’s growth strategy with hard cash.

Two acquisitions have been completed in the past year and several more will follow, expanding Winking’s customer base and service offering. Jan is also developing an AI kit to speed up delivery and further reduce costs.

Midas judgment: Although Winking’s head office is located in Asia, Jan has chosen to list on Aim because he would like to expand in Western markets. Britain is also home to some of the most talented people in the industry, making London a natural choice for this fast-growing company. At 18 cents, the shares are a buy.

Traded on: Goal ticker: WKS Contact: winkingworks.com