Disclaimer: This was meant to be published on 20 Jan but i think i have missed it.
If this post is published, it probably means that i had a good week(on 20 Jan) and decided to release my thoughts/predictions on the 2H and FY Results.
For Folks who are curious on how the previous time it went, i wrote a similar preview for 1H 2023.
Concise Version
2023 Revenue Fall Compared to 2022 is likely, with any growth in profits to come from margin expansion / revenue growth in Plush Stuffed Toy.
Revenue from Top Customer in 2022 will fall in 2023. For 2023 revenue, Japan and China should see revenue growth while US it should see revenue decrease compared to 2022.
I am still optimistic that we will see profit growth for FY 2023 compared to FY 2022.
Long Version
Negative Factors affecting the company
Funko continues to show negative growth.
Funko, its main customer, continue its weak guidance that it has previously guided and this meant that we are going to see only slight improvements in Sales in 1H compared to 2H.
Funko recorded 491 million in revenue in 1H 2023. While 312 million is recorded in 3Q 2023, a guidance of full year 1065 million to 1105 million meant that 2H would come in at 574 million to 614 million.
A range of 16% to 25% growth compared to 1H 2023. But 2H 2022 was at 698 million revenue. Therefore this would represent a drop of 12 to 17% in revenue.
If we were to microscope it a bit further, Funko's inventory has been falling since 2022 and with a weaker revenue, i estimate it to be lower or at current levels. This implies lesser addition and would affect suppliers like Dream.
Therefore I estimate a drop of 15% to 30% in revenue in 2H 2023 compared to 2H 2022 but an increase of likely 10-20% from 1H 2023 for Revenue from Funko
Toy Industry in US continue to see headwinds.
When news articles of such is being published, it possibly bodes an outlook that is not as rosy. As Dream does have Hasbro as one of its customers as well, it would definitely affect Dream's ability to make up for the shortfall from other customers.
Export Data for Vietnam
Looking at the 'Toys, games, and sports requisites' segment of exports for Vietnam,
We can see that export to US has fell in 2023 1H by 25%. Dream International's US Revenue similarly has fallen by a larger amount of 38%.
As such, i would probably think that 2023 2H Revenue to US would fall by around 20-30% as similar to my previous estimate.
The good news is that revenue to US in 2022 2H is already lower than 1H which means we are not exactly jumping off from a huge cliff but the difference will still be there.
Vietnam Industrial Production Index
Another possible indicator would be the industrial production. Interesting enough, Dream's Revenue seems to follow the YOY Increase / Decrease in the Index although the magnitude might be different.
As such, as 2023 2H is around 8% lower than 2022 2H, i would estimate revenue to be lower in 2H 2023 compared to 2H 2022.
A slightly brighter spot is that the figures in 2023 2H is higher than 2023 1H
Possible Bright Spots
Sustained Theme Park Demand
From my knowledge, Dream International does produce for Theme Parks under the Plush Stuffed Toys Segment
Which was one of the reasons i made the trip to Japan Disney to take a look at how many toys are actually produced in Vietnam. I also had to see for myself how the crowd and all is like as well.
In the theme park shops, there are definitely more Vietnam made products compared to in the Disney store i saw at Shibuya.
July to September looks like decent figures for 'sustained demand' as revenue and inventory have largely remained at higher levels. Oriental Land also guided for higher visitorship from October 2023 to March 2024.
It is worth noting that although visitorship will be higher(12.5m from April 2023 to September 2023), the merchandise revenue is actually a lower guidance. Therefore, we would need to monitor to see if it is a conservative guidance or not.
Exports Data to Japan in 2H Positive.
Positive for YOY and HOH. As such, I am still largely positive that Revenue from Dream to Japan might surprise on the upside as a result of this increase in export to Japan.
Cost Remains Acceptable
PVC Resin, ABS remain the major raw materials.
PVC Prices in 2022 2H ranged from 5.9k to 7.3k. The range was lower at 5.6k to 6.7k at 1H 2023, and continued to be rangebound of 6000.
As such, i believe margins should be decent, similar to 1H 2023 and better than 2H 2022 as cost is still slowly falling from a high level.
As such, i don't expect negative surprises from cost as well.
Regional Export Data
Not exactly a very influential indicator but Dream has most of its factories in Ha Nam. However, Ha Nam houses other big companies (Wistron Corp, Honda and Seoul Semicon Vina) as well therefore while this data is nice to have but might not be easy to have any correlations.
Ha Nam Exports have increased since 2021 and in 2023 have hit record highs. 30% increase in exports value from 2H 2022 to 2H 2023.
Conclusion
Revenue from US is likely to be weak while revenue from Japan is likely to be stronger. However, the gain in revenue from Japan is unlikely to cover revenue from US.
As such, any profit improvements will come from margin expansion and i believe that should happen although the magnitude will depend.
With regards to demand from Shanghai Disneyland, that will be a factor in deciding profits as well. I believe 4Q might be a little weaker(5%-10% lower visitorship) than 3Q but should still remain at a good demand level. We might get some color when Disney releases its results.
Funko's revenue projection for 2024 in its earning release (usually in March) will also likely play a part in the analysis moving forward.
Currently, Dream is still hiring which is something positive as well.
This year would mark Dream's 40 Year Anniversary.
Will we see something special like a special dividend? Although we need to take into account that the dividends of 20 cents in 1H 2023 is already double of 1H 2022 and it was 'To reward shareholders of the Company for their long-term support'
K-Pop Pictures Spamming Time
Post 20 Jan Updates
Vietnam Industrial Production for Manufacturing of Games and Toys is off to a decent start. Coming in at 48% higher than Jan 2023 and 11% higher than Feb 2023.
However, the preliminary export figures for the 1st 2 weeks seem to indicate a very weak opening of the year which means there needs to be more monitoring of the statistics.
February Figures for Exports / IIP unlikely to be of much reference as there will be a 'Tet'. Similar to CNY Break. It is expected to last around 10-12 days. (from 7 to 19 Feb if i remember correctly)
China Disneyland Shanghai Tourism in 2023, has broken 13 million visitorship. This is actually a record breaking year. At the end of the year, a new segment of the theme park called zootopia has opened as well.
With regards to the Japan Disney Side
Sorry, i just realized Oriental Land has released their results up to 31 December 2023 on 30 January 2024.
26.3 million visitors is the forecasted target from April 2023 to March 2024. According to Oriental Land, 12.50 million visited from April 2023 to September 2023.
My estimate says 7.53 million visited from Octoboer 2023 to December 2023.
Therefore, to hit the target, 6.27 million will be required. January Figures look to be around 2 million. It might make sense that the forecast is not revised.
On the Inventory end. Inventory has fallen from 16523 m as of Sept 2023 to 12893 m in Dec 2023.
While inventory has fallen, Merchandise Revenue has increased to 48459 million. A big increase considering the previous quarters were 38334 million and 39364 million(23% increase).
With that i have come to the end of my analysis.
