MIDAS SHARE TIPS: Video game company Winking Studios has its sights set on a profit boom

When Keyword Studios floated on Aim in 2013, the business was valued at £49m, with shares changing hands at £1.23 each. Two months ago, Keyword was acquired for £2.1bn, equivalent to £24.50 per share.

Providing services for video games, from music and art production to translation into dozens of languages, Keyword grew 40-fold during its 11 years at Aim and shareholders were richly rewarded.

wink studies hopes to offer a similar shine. Based in Asia, Winking helps game companies with art production: developing ideas, creating characters, building 3D monsters and buildings, and ensuring visuals look fantastic. The company joined Aim last month at a price of 15p, the shares have risen to 18p and should continue in that vein as founder Johnny Jan expands and develops the business.

A gaming enthusiast since childhood, Jan, now 48, founded his first business in 1997 and gave rise to Winking Studios in 2004. The company has steadily grown sales and profits over the past two decades, working on the best games like Assassin’s Creed, FIFA, Call. Of Duty and Genshin Impact, one of the most popular mobile games in the world.

The producers of these titles are attracted to Winking for two reasons. First, the quality of your artwork and second, the prices charged relative to competitors.

Headquartered in Singapore with offices in Taiwan, Malaysia and China, the company employs more than 800 people. Most are highly educated, but earn much lower salaries than their Western counterparts. That means Jan can offer artwork services at prices two to three times lower than European or American operators, an increasingly attractive proposition as gaming companies try to reduce costs.

Video games are a huge industry, valued at almost £200bn, around twice the size of the film and music sectors combined. Although once limited primarily to teenagers, they are now enjoyed by young and old, men and women.

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

Winking also specializes in mobile phone games, the fastest growing market segment.

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

Outsourcing is another major trend in this business, where game publishers use outside specialists to reduce costs and gain a competitive advantage.

Jan is very ambitious. Revenue is expected to rise around 15 per cent to $38m (around £30m) between now and 2026, while profits are forecast to soar from $700,000 to almost $4m, and more will follow in later years. It is also willing to pay dividends, starting with 1 percent next year but increasing steadily as the business grows.

Like Keyword, acquisitions will play a key role in Winking’s development and here Jan has an ace up his sleeve: Taiwanese computer giant Acer. Eager to expand into the entertainment market, the multibillion-dollar company acquired 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 deep pockets and is willing to back Jan’s growth strategy with cash.

Two acquisitions have been completed over the past year and several more are likely to follow, expanding Winking’s customer base and range of services. Jan is also developing an AI kit to speed up delivery and further reduce costs.

Midas Verdict: Winking may be based in Asia, but Jan decided to list on Aim because he wants to expand into Western markets. The UK is also home to some of the most talented people in the sector, making London a natural choice for this fast-growing company. At 18p, the stock is a buy.

Traded in: Aim Heart: weeks Contact: winkingworks.com