Vividthree Holdings - UOB Kay Hian 2018-10-04: Transforming To A Scalable Content Producer

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VIVIDTHREE HOLDINGS LTD. SGX:OMK

Vividthree Holdings - Transforming To A Scalable Content Producer

• Vividthree is transforming from a post-production provider to a digital content producer, with the new segment contributing 60% of FY18 net profit. It should benefit from the rising penetration of VR, having recently secured the rights to develop a VR thematic tour show for a popular film.
• 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 S$1.0m-1.5m net profit (37-56% of FY18 net profit).

Business Overview

• Vividthree has two key business segments:
  1. Post Production (40% of FY18 revenue). Specialising in visual effects, computer- generated imagery services and other post production services such as video editing and colour grading.
  2. Content Production (60% of FY18 revenue). Develops digital IP assets or acquiring them from third parties to produce movies/series or VR products such as thematic tour shows.

• Similar to most VFX companies, Vividthree started as a “contractor” to provide post-production services for customers like film producers, corporates and advertising agencies. As it builds up its technical competence and leverages the extensive network of mm2 Asia (SGX:1B0), Vividthree has successfully expanded its production beyond Singapore into Greater China and with a greater focus towards the more profitable content creation model.

History and Milestones

• In 2003, after graduating with diplomas in multimedia, founders Charles Yeo, Sky Li and Jay Hong, incorporated Vividthree Pte Ltd. Shortly after, they were introduced to production companies in the movie and film industry and started working with a production company to produce animated films. During this time, they were involved in both the production and post-production processes, with the latter including video editing, editing of soundtracks and colour grading, and built up their visual effects, post-production capabilities and technical skills. With the experience gained, the founders incorporated Vividthree Singapore in 2006 to focus on the core business of offering production and post-production services. Vividthree Pte Ltd was eventually struck off in May 09.
• In 2006, Vividthree took on its first project to produce a 3D stereoscopic video, ‘Tiger Beer Live from Grain to Gold’. As the group continued to build up its capabilities, they also invested in acquiring additional software and hardware such as computers and expanded the scope of our visual effects services to include 3D animation.
• The group’s first 3D animation project was the film ‘Men in White’, which was produced by Boku Films Pte Ltd and released in 2007. Thereafter, the group worked on the visual effects in two US films - Robotropolis which was released in 2011, and Battle of the Damned which was released in 2013.
• As Vividthree’s founders continued to build up their experience in the industry, in 2012, they worked together with J Team Productions on the visual effects and computer-generated imagery in ‘Ah Boys to Men’ which became the highest grossing local production in Singapore in 2012, earning S$6.21m in box office receipts.
• In 2015, mm2 Asia (SGX:1B0) acquired 51% of Vividthree. Following the acquisition, Vividthree has access to a wider range of......

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INVESTMENT HIGHLIGHTS

Transiting to a more profitable business model that focuses on content .....

Attractive industry prospects and investment ......

Extracting synergies from the ......

Refer to the 15-page PDF report attached for complete investment highlights. 

VALUATION

• Based on peers’ 18.7-18.9x FY20F PE, the valuation range for Vividthree is S$0.44-0.45.
• If Vividthree meets its VR sales target, it expects net profit to grow 64-74% ......
• Vividthree has secured the clients ......

Singapore Research Team UOB Kay Hian Research | https://research.uobkayhian.com/ 2018-10-04

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