Dream International had a crazy week from 11 June. It has rallied from 6.25 to a peak of 11.36 before retracing to close at 9.70 today.
The most epic day came on 11 June itself where there was huge volume traded (15 times of usual trading volumes) leading to a 44% increase. As it was too volatile, i decided to wait a few days and gather my thoughts before talking about it.
Turns out that there was some sharing / interaction session with management and folks were convinced that it was underpriced at that value.
Interested folks can read them at https://xueqiu.com/2416893682/338438205 and https://xueqiu.com/8320943040/338364949
I will just talk about my thoughts after reading them and reconcile my thoughts again and inform about my take and position.
1) Positive Theme Park Sentiments.
My thoughts: This is inline with what i mentioned earlier so it is good to know that the view still remains
2) 2H 2025 Gross Margin Comments. 'It's going to be okay'.
My thoughts: It is very rare for the management to comment about gross margins as they are usually very less positive about it. For them to say its going to be okay is a huge surprise.
3) On Pop Mart as a new customer. They admit that Pop Mart is a customer, which once again i am not surpised. The quantity is on the low end still and they will have to discuss and also take care of their production capacity as they might not have space to give them. A discussion is expected in 2H with regards to this.
My thoughts: This is definitely good news as there is acknowledgement from Pop Mart. Pop Mart has once mentioned that they would want to source from south east asia up to 20% of their sourcing. 20% sounds really low especially when POP Mart's Cost of Goods Sold is 3.7 billion HKD in 2024. 20% is around 740 million which is around 13.5% of Dream's 2024 Revenue.
But, considering that this client can achieve huge revenue growth of at least 80% revenue , this amount can easily increase a lot in 2025 2026 . Having them as a customer will definitely divert away a lot of risk associated with the US Customers (Destocking Cycle and Trade War)
4) Factory Expansion in Indonesia. Will look to have 2nd factory.
My thoughts: Explains about the demand is still good.
5) Increased Enquires from Buyers for Capacity from Dream as they want to shift out of China Productions.
My thoughts: I think this has been repeated many times in various toy companies such as Hasbro , Spinmaster and Funko. No surprises. A listed peer with the production scale outside of china apart from Dream , i cannot think of one.
6) In contact with more investors this year compared to previously.
My thoughts: Self Explanatory given the trading volume, their IR have been responsive as well and even offered to have a zoom session with me in the earlier years but i did not attend as my queries was answered.
Conclusion: The key risk still remains so lets not kid ourselves and get too ahead of ourselves and punch a target price that is sky. But current price is a PE of 9 which is not expensive (given by how it is large in the toys production industry and probably biggest production scale outside of China) and is on the back of a poor 2024 year and before new customers make meaningful contribution and the increased shift in manufacturing away from China. If earnings improve this year, this PE will shrink.
Though as we all know too well , the main shift out of China is due to tariffs and if the trade deal is not done, we might see tariffs in vietnam being higher and as such companies might not want to shift out anymore but instead shift back in.
Though i would argue that having pop mart recognize the company's production abilities and capacities will be able to mitage this portion well as it shows that their new customer generation is gaining traction. But still, 10 July deadline remains an overhang for now.
In terms of results, after reading what i have seen and also the various export data and customer's results, i still remain positive on it.
I am just going to boldly predict that i think we will see a positive profit announcement for 1H 2025.
Will continue holding it till at least the results release. But of course if it decides to rally to prices that would be good enough for me to retire then that is another thing altogether but lets just say it is a long way out and i still have to 'Dream' about it.
I have always been some way off in terms of predicting its profitability so it sounds like a jinx already. But if i was asked to make a prediction as a retail investor and NTU Business undergrad who cannot even make the entry level equity analyst job in Singapore......
I will say we can do 60 cents earnings per share in 2025 1H.
(2023: 1H 49.3 cents. 2024: 1H 41.2 cents)
Pasting the same kpop photo to hopefully continue to bless the company for good luck.
