CFA Society Singapore
SINGAPORE (Oct 4): UOB Kay Hian is highlighting Vividthree Holdings, which recently made its SGX Catalist debut on Sept 25, as a stock with attractive industry prospects and investment proposition.
The brokerage has given the stock a valuation range of 44-45 cents based on peers’ 18.7-18.9 times FY20F P/E, with expectations for net profit to grow 64-74% for FY19-20 should the company meet its sales targets.
This comes as the company transforms from a post-production provider to a digital content producer by taking a more profitable model focusing on content production, after securing intellectual property (IP) rights to develop a virtual reality (VR) tour for Train to Busan, a popular Korean film.
In an unrated report on Thursday, UOB estimates the new content production segment will contribute to roughly 60% of Vividthree’s FY18 profit with the potential to benefit from the rising penetration of VR.
“If executed well, the VR tour will be highly profitable and transform Vividthree’s business model to a highly scalable one where it could grow with more recurring royalty income and IPs. For each VR set, Vividthree expects $1-1.5 million net profit (37-56% of FY18 net profit),” explains the research team.
UOB also believes Vividthree has gained new business opportunities from its parent company mm2 Asia, particularly in North Asia where sales have increased to 32% of FY18 total revenue from 0% in FY16.
More importantly, the research house highlights the IP rights of the Train to Busan VR tour, which Vividthree gained access to the IP rights through mm2’s cinema network, may continue to pave the way for the company to secure more blockbuster IPs for similarly immersive experiences via strategic access to global film studios or other IP owners like Apollo Space Travel, Walking With Dinosaurs and Disney.
“With a relatively low initial capital outlay of $2-3m for a VR set, management expects the investment payback period at only around one year, making it an attractive investment. Vividthree will sell the VR tour sets consisting mostly of software to stakeholders on a build-to-order basis and earn a fixed production income. It will continue to enjoy the success through royalties. Should promoters request for exclusive operation of the VR tour in a region, Vividthree may earn additional territorial rights fee,” concludes UOB.
As at 11am, shares in Vividthree are trading flat at 26 cents.