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Will Vividthree Holdings Ltd Be the Next Blockbuster Share?

Vividthree Holdings Ltd is set to be the latest addition on the Singapore stock exchange.

The company, which would be a spin-off from its parent, mm2 Asia Ltd (SGX: 1B0), is placing out 51.8 million shares at S$0.25 each to raise gross proceeds of S$12.95 million. The placement closed on 20 September, and trading of Vividthree’s shares is expected to start on 25 September.

Following the placement, mm2 Asia will hold 41.5% of Vividthree, down from 49.2%.

Vividthree is a virtual reality, visual effects, and computer-generated imagery studio that develops and creates digital intellectual property (IP) assets. These assets mainly consist of storylines with their accompanying characters and visual elements. Vividthree also acquires IP rights owned by third parties to produce virtual reality (VR) products, including exhibitions based on VR technologies.

On top of content production, the company also provides post-production services, mainly in visual effects, computer-generated imagery, and other post-production related work.

Vividthree provided visual effects and computer-generated imagery in the first three installments of the Ah Boys to Men movie series.

Show me the money

From FY2016 (financial year ended 31 March 2016) to FY2018, Vividthree’s revenue grew by 34% annually, from S$3.96 million to S$7.06 million. Net profit rose 39% per year during the same period to S$2.71 million. Vividthree ended FY2018 with a commendable net profit margin of 38.4%.

As of 31 March 2018, the company had S$2.4 million in cash and cash equivalents, and total debt of just S$0.13 million.

Vividthree also managed to grow its free cash flow by 32.7% annually, from S$1.09 million in FY2016 to S$1.93 million in FY2018.

Growth prospects

To grow its business in the years ahead, the company revealed three plans in its initial public offering (IPO) prospectus:

1) Build up its digital intellectual property through the development of virtual reality products and other immersive experiences;

2) Expand its presence overseas and strategic acquisitions; and

3) Expand its IP-stable through strategic acquisitions.

On an industry level, the growth of VR and technology-driven immersive entertainment would also bode well for Vividthree. For example, the proliferation of smartphones and devices which are compatible with VR, augmented reality, and mixed reality allow consumers to experience content like never before.

Valuation

At a share price of S$0.25, Vividthree has a price-to-earnings ratio of 29 based on its pro-forma FY2018 earnings. The company does not have a dividend policy. If Vividthree can continue its impressive growth in revenue, net profit and free cash flow in the years ahead, I think it can go on to be a blockbuster share.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Sudhan P doesn’t own shares in any companies mentioned.