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13 July 2021 | Buy

BUY | Mighty Kingdom


A mighty good time

Mighty Kingdom (ASX:MKL) is the largest independent game developer in Australia, designing game experiences from the ground up for consoles, PCs, and mobile platforms.

Mighty Kingdom has released more than 50 games, achieving more than 50 million downloads, and has plenty more games under development in the pipeline.

The gaming market is the largest entertainment segment globally, with over 2.7 billion people who enjoy some form of interactive gaming. According to industry source Newzoo, the gaming market delivered over US$150b in sales in 2020. App ‘Annie’, a mobile data and analytics platform, expects the mobile gaming segment alone to exceed US$120b in spending in 2021, up 20% over 2020.

The growth in gaming, and especially mobile gaming, is being driven by advances in computing power and the penetration of mobile phones which has been accelerated by COVID-19. Adding to the tailwinds, the Australian government announced a tax offset of 30% for video game development. The offset is intended to drive growth in domestic gaming.

 Better than the rest

MKL expects to grow revenue through the development of original IP games and growth from existing projects. Despite this strong outlook, MKL trades at ~3.6x FY20 revenue, representing a discount to peers such as Playside Studios (ASX: PLY) and iCandy Interactive (ASX: ICI) who trade at ~11.7x and ~8.5x FY20 revenue respectively.

MKL’s growth is expected to be well above many of its competitors. Growth is forecast to be in part driven by MKL’s superior industry reputation compared to rivals, which should assist the company to convert sales opportunities.

Market sentiment in the sector remains strong globally, with gaming company Krafton Inc (publisher of PUBG) set to be South Korea’s largest IPO in history with an expected valuation of ~US$17.9b, representing ~12x FY20 sales.

Given how peers are trading, there is an opportunity for MKL to enjoy significant multiple expansion.

There is a mighty pipeline

MKL has a strong pipeline of opportunities through development of original IP games such as ‘Ava’s Manor’ which has recorded significant uptake on iOS and Android. MKL is also enjoying success developing games such as ‘Peter Rabbit Run’, ‘Gabby’s Dollhouse’ and is working with global toy company, Mattel Inc. MKL has a pipeline of original IP games in development, including ‘Conan Chop Chop’ and ‘Ball Stars’ which are expected to be released in Q3 FY21 and Q1 FY22.

Intellectual property is the key to success

MKL has a strong reputation for its development and work-for-hire capabilities. Now with significant internal resources and strong IP that has been developed over several years, they are in a position to develop MKL original IP games that will not only drive revenue growth but also lead to an increasing share of recurring revenue through its captive customer base.

A mighty balance sheet

MKL’s strong balance sheet (net cash of A$16m) and well-regarded reputation in the gaming sector provide significant opportunities to pursue acquisitions that will enhance internal capabilities, IP and distribution, and also realise benefits from increasing economies of scale.

We believe that MKL has been the victim of the infamous “tax-loss selling” which has artificially influenced recent price momentum despite the recent positive update.

The IPO in mid-April was met with immediate selling pressure which has seen the share price drift ever lower. With June 30 now behind us, so too are excuses to sell the stock.

If you have any questions regarding investing in MKL, please contact your personal advisor or Alex Martin on (08) 8236 8871 or



Disclosure:  Baker Young participated in the Pre IPO and IPO for MKL and has received commissions.

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