Recent Positions Thoughts (Huationg , Dream)

Recently have not been posting often so i will post an update on my thoughts on the 2 positions that i have held and have reported results

Huationg - Nothing too surprising as results will likely be the best it will be for some time unless construction and inland transports margins outshine and cover up the dormitory shortfall in 2H 2024.

2H 2024 will probably show a closer normalized earning of life after dormitory or life assuming no new dormitory business is found.

Company has also turned a corner by having finance income > finance expense. Something that is really unimaginable for construction companies if you ask me 5 years ago.

Strong Cashflow has always been the case for this company in recent times, this continues to be the case.

My few points that I would take note of will be

1) Subcontract Cost. This has tripled even though contract works revenue has only doubled. This has also slightly affected segment result margin. From 8.7% to 7.5%. However, if revenue keep increasing, I am ok with the 7.5% margin actually

2) Sale of Construction Material Segment. Perhaps a less talked about segment. It has recorded the following results

(In’000)	1H 2023	2H 2023	1H 2024
Revenue	1,985	4,473	6,235
Segment Result	36	570	963
Depreciation	193	393	468

To be honest, i think this is pretty remarkable although I have little idea what they are selling but to record a 68% gain in segment result on the back of increased depreciation is something worth keeping an eye on.

3) Inland Logistics Segment

(In’000)	1H 2023	2H 2023	1H 2024
Revenue	8,327	9,646	8,646
Segment Result	79	1,931	632
Depreciation	192	438	1103

Perhaps a slight disappointment will be the results being not as consistent. 

Conclusion: If the Construction Material Segment and Inland Logistics Segment are tightly related to the construction revenue, there is a good chance of earnings improving in these segments in 2H 2024. To say that it will be enough to cover the shortfall of the dormitory is still being too optimistic.

I would still look to reduce my position and redeploy in other counters. But I would be okay with holding another half year and re-assess its results again to see if the other 2 segments can pick up along with the construction segment and also to see if the company has managed to make traction in the dormitory business.

Dream International

Key Highlights

Revenue Fell 7%

Net Profit Fell 17%

HK, China show improvement in revenue while USA and Japan recorded lower revenue

Slight Margin Improvement 23.16% to 23.99%

Segment Margin Decreased for Plush and Plastic Figures

Plush Stuffed Toys Segment Breakdown

(In’000)	1H 2023	2H 2023	1H 2024
Revenue	1,239,913	1,487,878	1,186,083
Segment EBITDA	377,703	427,504	306,266
Segment Margin	30.17%	28.73%	25.82%

Plastic Figures Segment Breakdown

(In’000)	1H 2023	2H 2023	1H 2024
Revenue	1,007,115	1,216,890	936,337
Segment EBITDA	110,500	241,666	98,003
Segment Margin	10.97%	19.85%	10.47%

Dividend Maintained

It is rather tough to talk about this set of results as being bad. This is because gross margin actually is better. If it was worst off, it would have been easily a story of lower revenue lower margin lower economies of scale / pricing pressure.

But 1H 2024 was not the case. Automation was also mentioned so it seems to have left some optimism for 2H 2024.

Japan has recorded close to 20% drop in revenue and at the same time Plush Margins fell from 30% to 25%. My instant hunch is that the juicer margins definitely comes from Japan.

USA recorded around a fall of 18% in revenue. No surprises there as my estimate from Funko is around 16-20% based on its COGS / Inventory Additions.

2H 2024 has always been traditionally a stronger result for Dream (On Average 15 to 50% Revenue Increase compared to 1H depending on which year is being looked at). Therefore, i think it will be important to see how its partners are doing in 3Q 2024 and also cross-reference to some of the export statistics for Vietnam and reassess again. 

My current concerns will be the weakened Japan Revenue. Would have to see if I get any response from the IR.

There will be some level of waiting and patience needed. However if the automation and strong gross margins push through with the increased revenue in 2H 2024 compared to 2H 2023, there is always every chance to make up the 17% net profit shortfall.

If partner numbers show a double digit shortfall in 3Q 2024, it probably is time to consider exiting and reassess but until then, i think i am ok holding on for the time being.