Kucingko Berhad (KUCINGKO, 0315) will be making its debut on Bursa Ace Market today. KUCINGKO is primarily engaged in 2D animation production services through its subsidiary, Inspidea SB. A minor portion of the business involves providing food services, managed by its subsidiary, Bowleh SB. We recommend a BUY with a fair value of RM0.54, based on a FY25F PER of 20x, which represents a 20% discount to its global industry peer’s average PER due to its smaller market capitalisation.

KUCINGKO has a stellar track record with clients, maintaining strong partnerships with three of its top five customers for 9 to 16 years. This longevity highlights the company's ability to build and sustain excellent client relationships. As a Malaysian company, KUCINGKO’s proficiency in English gives it an edge over competitors in Korea and Thailand, ensuring smooth communication and higher customer satisfaction, particularly with European and North American clients. Additionally, KUCINGKO’s subsidiary, Inspedia, serves world-renowned clients like Warner Bros., Cartoon Network, and Xilam Animation, showcasing its high standards in delivering top-quality 2D animation.

KUCINGKO is poised to capitalise on the explosive growth of the video streaming market, which is projected to soar from USD 555.9bn in 2023 to USD 2,660.9bn by 2032.This meteoric rise is driven by the surge in social media platforms, unparalleled internet connectivity, and the relentless expansion of streaming giants like Netflix, Disney+, Hulu, Amazon Prime Video, and HBO Max. As consumer preferences shift towards digital content, the demand for top-tier 2D animation is expected to soar, positioning KUCINGKO for exceptional growth.

To leverage this growing demand, KUCINGKO has outlined strategic expansion plans. With approximately 74% of its FY23 revenue derived from North America, the company plans to establish a sales office in the USA. This move will enhance KUCINGKO's ability to serve existing clients and attract new ones. Employing experienced US staff will provide valuable insights into the latest market trends, allowing deeper market penetration. Additionally, KUCINGKO plans to use 40% of its IPO proceeds to establish new offices in Sabah and Sarawak, hiring 75 new employees. The Selangor office will also add 30 animation artists. This expansion aims to boost animation output and meet growing demand by leveraging the regional talent pool. KUCINGKO’s strong contract portfolio and order book provide clear earnings visibility. Currently, the company has 10 animation projects with a total value of RM45.4m and an unbilled order book of RM23.2m for FY24-25. With these solid foundations, we expect KUCINGKO’s earnings to grow at a strong CAGR of 27% from FY23 to FY26, driven by a promising outlook for international 2D animation.

The company is currently in a net cash position, which is expected to continue post-IPO. KUCINGKO offers an attractive dividend yield of 3.6% for FY25, based on a conservative assumption of a 40% payout ratio. The company’s policy is to pay no less than 40% of PAT, and it has historically maintained solid dividend payouts, ranging from 60% to 103% over the past four financial years.

Source: Rakuten Research - 26 Jul 2024

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