DDD Group: Maiden Full Year Profit, Plus Lower Tax Charge

DDD Group (DDD.LE) reported strong FY12 numbers, with revenue up 56% to $8.6m and a maiden full year normalised pre-tax profit of $2.0m. EPS of 1.1c came in 0.2c higher than our estimate due to a lower tax charge. The group’s licensees shipped 15.0m units (FY11: 9.1m) of TriDef 2D to 3D conversion software during the year, with 16 licensees shipping royalty bearing products by the end of 2012. During the year, three new licensees were added and four licensees renewed existing software licence agreements. In addition, the group completed its first patent IP licence agreement. Yabazam, the group’s streaming 3D video business, launched video on demand and, in 2013, subscription services for Smart TVs.


Maiden full year profit, plus lower tax charge
The group’s 56% rise in revenue to $8.6m (FY11: $5.5m) reflects the increase in royalty bearing shipments to 15.0m (FY11: 9.1m), of which 82% were from TV, 16% PC and 2% mobile devices. Three major customers represented 89.9% (FY11: 82%) of revenue. Gross profit margin rose to 97.2% from 94.3% in FY11 as higher-margin royalties increased to 99.9% of revenues (FY11: 85.6%). Admin expenses increased to $5.2m (FY11: $4.3m) with the full impact of FY11 hiring and routine cost increases. The tax charge was less than expected with more deferred tax recognised, though $1.0m foreign withholding taxes were paid (FY11: $0.9m).

New potential revenue areas add to growth prospects
In FY12, DDD introduced the Yabazam 3D movie streaming service for LG and Samsung Smart TVs (combined 45% 2012 3D TV market share). In Q412, this was upgraded to video on demand and is now available in 17 countries. DDD has also launched a monthly subscription plan in the US that allows unlimited viewing of original 3D content from Yabazam. In 2012 DDD signed its first patent licence (with Samsung) which allows Samsung to exploit DDD’s extensive international patent library to perform offline 2D to 3D conversion of HD video content. While our FY13 estimate only includes a minor impact from these new areas, we anticipate that they could reap significant revenue and profit in the medium term.

Valuation: Higher price suggested plus added kickers
DDD has established a strong leadership position for 2D to 3D conversion across multiple display segments, and the group should be able to participate fully in growth of the 3D market. We believe the potential growth in the group’s revenue and accompanying earnings progression should be reflected in a higher share price with the further potential kickers from Yabazam and patent licences adding to medium-term growth prospects.

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