Previewing Dream International HY 2024 (Revenue Growth likely but Predicting is Not Easy This Time Around)

Folks who have seen the previous post on Previewing 1H 2023 and FY 2023 would not be stranger to such a post. Dream International 1126.HK has been on my portfolio for some time.

In my mind i was thinking about when would be a good time to publish this post. I feel that i will have a better idea in early August(will explain why as well), but i decided to publish it now so it would be good to get it off my head.

Writing the Conclusion First: No intention to dispose any shares and will not do so. Will reassess when results information are out.

I still 💗 the stock

As per the title stated, i think that Dream International will likely show Revenue Growth but my predictions is not easy this time around due to various indicators showing mixed results which i will talk more about in the following post.

I will start with the negatives

1) Funko Depression

Funko guided its 2024 Revenue to be lower than its 2023 Revenue in its FY 2023 Results Briefing. In some sense it is already a known card that it is going to be bad. Therefore, there is no surprises as this segment continues to depress. With revenue coming in around 15% lower. Coupled with another 7 million lower inventory, this adds up to around 18% lower demand estimated from Funko to Dream.

Given that Revenue already fell from 2.1b to 1.1b in 2023, this 18% is likely translated to around 198m and since it is in the 1Q which is 20% of full year revenue forecast of Funko, the impact is likely around 40m i think. Considering 1H Revenue is usually <2H, i would say 80m impact for the 1H 2024 is around there. 

The negative impact is likely small but it is still there nevertheless.

2) Uninspiring Macro Numbers

The Vietnam Index of Industrial Production for Games and Toys is one of the macro indicator for the Toy Industry.

In years where it has produced negative growth YOY, Dream's YOY Revenue has also shown negative growth

(YOY refers to Year on Year)

However, i do acknowledge that the decrease this time around is relatively small. But this macro indicator cannot be ignored.

Exports Figures has been lackluster as well, Export of Toys and Sports requisites have seen a huge decrease from Jan to April. But have recovered well in May and June. Overall a small decrease of 4% and 7% to Japan and US. 2 Key Geographical Regions where Dream Exports to.

3) Margins

One concern shown by ppl on twitter as well as many folks across different platforms will be that its margins are too high and unlikely to be sustained. 

In a smartkarma report i read, management says that they are not confident that it can be maintained as well.

However it is worth nothing that i was told that in 2023 there were pricing pressures as well. 

With regards to this aspect, i can only say it is a business risk and we can only assesss as it goes or see if any clues come up with regards to raw materials / workers salary / cost savings from customers.

Raw Materials - PVC Price = Flat, ABS Price = Slight increase around 5%.

Workers Salary = 10-15% Increase from my understanding.

Overall this remains a risk but it is a business risk.

Positives / Opportunities

1) Increase of Salary is linked to Massive Employment. 

Around Jan-Feb, a few factories have started mass hiring around 200 to 300 staff. In April / May , they offered to rehire workers back in the first time ever (I Believe) on previous or better benefits as well as hiring even more staff of up to 1000.

Increase in Pay and Mass Hiring. 

This is of significance because Dream International has always been a relatively conservative company when it comes to staff strength. There is a decrease of staff from 28,924  in 2022 to 26,210 in 2023 when revenue is down as well. As such, this scale of hiring to me is a positive sign.

2) Sustained Theme Park Demand

Tokyo Disney Theme Park Merchandise Revenue is forecasted to be flat with gains of around 2-3%. However, from Jan to March 2024, it is around 17.9% higher than Jan to March 2023.

Merchandise Cost of Sales to its Revenue has increased as well from 42.30% to 43.50% . Therefore, another somewhat encouraging factor if we link it to margins.

With regards to visitorship, my estimate is that there should be at least 10% increase in numbers from April to June 2023 compared to April to June 2024. 

A more key indicator will be when Oriental Land Reports results at End July (a reason why a clearer picture will appear in about 2 weeks time).

With regards to Shanghai Disneyland / HK Disneyland, it is seen in Disney Theme Park Results. 

There is increase in revenue of 25% YOY.

My estimate for April to June will be Shanghai Disneyland being strong while HK Disneyland is not as strong compared to 1Q 2024.

3) Start to take in orders from Pop Mart

This is with regards to plastic figures. According to a research website's AGM report of pop mart, it seems like Pop Mart will continue to order from factories in Vietnam although it is currently 10% of its orders only.

With Pop Mart's 1Q 2024 Revenue up 40-45%, this could be a surprise engine for growth or to replace the Funko Revenue Shortfall.

4) Potential Surprise in Die Cast Sector

Monster Jam has been identified as a reason for growth in this sector in 2023.

This margin improvement for this segment is incredible with just a relatively lower % of revenue gain. 

127% improve in segment ebitda while external revenue increased by around 20%. Management attributed it to Monster Jam (which is a product from Spin Master)

In 1Q 2024, although the revenue of the Wheels and Action Segment is down, POS Sale for Monster Jam remains positive and strong at +32% and Monster Jam Revenue is positive.

Conclusion

Although macro environment indicators tend to point to a negative growth with some doubts on its margins being sustained, i would want to take a more micro approach this time around as Theme Park remains strong and there could be a positive surprise from new customers revenue as well as Die Cast Segment

Furthermore, Toys Export has been strong in May and June, if this positive momentum is sustained then i believe it should not be a problem as the hiring translates into volume exported.

With that i end off with a couple of K-Pop / Travel Related Photos .

(Random Photo of Strawberry Mochi)

(Melon Bingsu)

If you manage to scroll all the way down here, then why not read the next few paras as well?

The tough question is.......will a positive profit alert or negative alert be issued?

If it is positive, it is likely due to the revenue increase and margins improved via productivity .

If it is negative, it is likely due to the cost increase such as labor / raw materials as well as margins erosion due pricing pressures .

Without seeing the spinmaster and oriental land figures for april to june, it is too hard to make any estimations but i am leaning more towards what i wrote in the title which is revenue growth and positive profit (35% chance) more likely than negative (15% chance) for now.

If spinmaster monster jam shows growth, we could see die cast really become a dark horse.

As for oriental land, maintaining some growth of high single digit when Jan 24 - June 24 vs Jan 23 - June 23 will be good enough.

I lean towards a more positive stance currently as from the estimates of the Oriental Land, i do not see any significant profit gain from merchandise savings and as such margins should be ok for plush.

(The increase in operating profit from merchandise / f&b cost ratio is 1.5 billion.)

(In the FY that past, it was 1 billion.)

Given that Revenue for Merchandise is 165,419 million yen or 165 billion yen while cost is 71,948 million or 71 billion yen.)

As such, a 1.5 billion yen in cost savings is unlikely to swing margins much. Even if all 1.5 billion is in merchandise and particularly plush, it would be likely around 1% margins erosion i think.

In fact, cost of sales has been increasing for merchandise and decreasing for F&B since 2021.

Biggest Loss in a Day

8 July 2024 turns out to be a day where the portfolio sees its biggest loss (both % and absolute figures)

Day Returns: -5.71%

YTD Returns: 12.19%

My own personal thoughts / emotions

Mentally, i feel fine actually. Perhaps it is because i knew the chances of this happening was pretty high since Friday and had the weekend to prepare for it following the announcement on Friday.

Also, in terms of motivation, it has not been high all along and I was not expecting the year to be great. Having said that, i will still say the same thing that i have been talking about. I can only do to the best of my abilities and there are many things that i cannot control such as corporate business decisions and all. While i can do my best to do research, there will always be things that cannot be found. 

I will do my best and leave it to God to decide if i should continue investing. If somehow i can clock in a negative return for this year(bearing in mind that the current returns as above), i think it is a sign for me to initiate the plan to 'rectify' the problem in the following 6 months and if i fail to do it then i would definitely take a long hiatus from investing afterwards.

After all, to take half of whatever money i have left and spend the subsequent 1-3 years travelling and doing whatever i want without a job and without having to think about investing on a daily / weekly / monthly basis is something i have pondered about doing. So if God decides to show me this way despite my best efforts, then i will gladly accept it.

Thoughts on the Main Culprit of Negative Returns (Huationg Global)

Clocking in a -16.875% loss today, it has eroded 4.78 million in market cap following the news of the Dormitories Failed Tender to extend.

Personally, i thought about selling some shares if the loss was within 5% but at 16%, it is too over-reactive. After all, i had mentioned in my previous post that there is 80% of revenue being lower in 2H.

Lets think of possible reasons for this sell-off

1) Dormitory Concept not lasting. While i agree with this as some folks might sell out as it is not a 'dormitory' stock anymore, it means that not enough research has been done.

A quick search on google revealed that on 7 March a document was published to invite companies to tender for the dormitory. As such, one could have tell by reading the document that the tender was ending soon.

2) Gambling on the Contract Win. 

I would agree with this reason, whereby folks are selling off as the contract win has failed.

3) Allocation of Cost makes valuing the company difficult.

Unfortunately, this portion has been mentioned in the AGM and it is tough for me to assess as well. As such i can understand this but unlikely it is the reason 

I think that folks just bought into it for the dormitory concept and were shocked that the dormitory is not being continued would likely have affected this sell down. Though i have to emphasis again the volume traded today is around 1+ million so it is not exactly 'high' as seen in the EGM Votes (8M) where shareholders were present and the management could not vote.

Breaking down the company is actually difficult due to point 3 mentioned. But if we were to take it literally and remove the whole segment.

19597 in Segment Result . 8070 from Dormitory. Taxes is 19%

As such, without dormitory, the value will be 7694 = (17569-8070)*0.81

This equates to around 4.3 cents EPS. Or around 3.1 PE. To me this feels reasonable as a construction company. Although i think this figure is not accurate as the projects should increase and as such have to reassess the margins of the latest projects. 

A better feel of the margins of the Civil Engineering Works and Inland Logistics Segment should be seen in the 1H 2024 results. 2H 2024 will probably reflect the damage of the cost allocations better.

But I would not fault anyone to think that without dormitory, the company might not be profitable. 

An argument is that the company is profitable in 2018 and 2019.....but times have changed and prices such as dormitory prices have went up as well.

I would have been more negatively surprised if 1H 2024 is loss making compared to the company not getting the tender. But we never know, because the results are still being tabulated. Although i still don't think it will happen.

The company made 2.95 cents in 1H 2023 and 5.10 cent in 2H 2023. We still have to factor in that a similar half could happen in 1H 2024 and also for 2 months in 2H 2024.

For myself, any decision to sell the shares should be based on the below factors

1) If a loss making profit guidance is announced for 1H 2024

2) 1H 2024 Construction and Inland Margins / Revenue Fail to Impress

3) Bad Balance Sheet or Below Par Corporate Actions such as No/Cut in dividends despite a solid cash flow and balance sheet. 

Life would never be smooth and invesments are never all sunny days. 

Things can come at you suddenly but all i can say is to stay positive and analyze each situation individually and come to a logical conclusion. 

And for myself, probably looking at more kpop stuffs to keep my mentality and mood positive so i can objectively analyze each situation better without much emotional in play.

(June 2024 Results) How i would invest in the singapore stock market if i had 100k of spare money

 

June 2024 Returns: 1.74%

Year to Date Returns: 11.26%

Since Inception (9 Sept 2020) Returns: 93.97%

Nothing much to pay particular attention to as June July will usually be quiet months and August it will be busy with companies reporting results.

July will see GKE report its results which i believe should be good. This is assuming if the company's logistics segment pegs its results to the storage price index in Singapore which has recorded its highest figure since 2020.

(108.4 and 106.7 for General Warehouse and Dangerous Goods Storage represent the highest level since 2020)

Recent Portfolio Actions. New Initiation?

 It wasn't that long ago that i wrote and updated my portfolio back on 9 April.  

(The HSI has increased by close to 8% since 9 April)

The returns then was 10.77%. Many things happened since then and now we are in June. The returns this year at this point is actually pretty similar to last year if i remember correctly......which is good. Last year in the second half of the year there was not much sizable movements or additions.

This year, I had intended to take a more wait and see approach as well....but i have decided to make some changes to the portfolio nonetheless

(All Guns Blazing, Lets Go)

I added a new stock to the portfolio. I am not sure if i could say this is a 'New Addition' because I have held this stock before and I have made money and lost money in the stock before......

Based on the game above, i am not sure if you can tell what company it is.......but perhaps the picture below will give you a better idea.

Yup i am welcoming back an old friend / joker. That is IGG (Hkex:799). It is a stock that i have been keeping tabs on for maybe 1 year plus even after i divested it at a loss back in 2022.

The thesis right now is different from when i bought it in 2021. Right now I think that it is a stock that has a new source of business revenue, some revenue diversification as well as usage of AI to cut cost. At a forward Estimated PE of less than 6, it is a stock that has interested me.

Some current details of the stock. Its Market Cap is currently 3.5 billion.

1) FY 2023 looks not impressive but 2H 2023 showed good profitability. 

Net Profit for its Core Business 

FY 2023: 17 million

1H 2023: -360 million

2H 2023: 373 million

Revenue

FY 2023: 5.265B

1H 2023: 2.499B 

2H 2023: 2.766B

This return to profitability can be attributed to reduced selling and distribution expense and lower cost of revenue.

It is worth noting that the 2H Profitability is done when Lords Mobile recorded a lower revenue of 1.45b in 2H 2023 compared to 1.65b in 1H 2023.

When we add that the revenue in 1Q 2024 is 1.4 billion , I think there is a good chance of this earnings being sustained.

2) App Business 

A shining spot for its recovery in revenue is due to its APP Business. Which IGG said on its earnings release presentation that it was 10 years in the making and it is still confidential and as such not much details are given on what are the apps apart from the revenue is being generated via ads.

App Business Revenue

1H 2023: 0.189B Average 33 million HKD

2H 2023: 0.390B Average 65 million HKD

However, management reviewed that they have decided to remove some apps that are more susceptible to regulations and are also less profitable in Jan, this has led to a change in focus and business model of the types of apps the have as well. This has led to the January 2024 App Revenue to fall to around 39 million HKD. In March 2024, the business has shown good recovery and recovered to 62 million HKD. In April 2024, it is close to 78 million HKD.

As such, it will be interesting to see how it does in May and June and as a whole the trajectory.

It is also worth noting that despite lower revenue in 1Q 2024, the company's revenue still is much higher.

3) Use of AI

The company has also mentioned that they have been using AI in their work to reduce the research and development cost as well as operating cost.

For example, computer art is now done by AI and development of apps can be done by 10+ people instead of 60-70 previously thanks to AI.

In terms of operating , it has cut down the amount of customer support required and helped in translations and coding. 

Similarly Operating Expenses has came down as well compared to 2022. 

4) Other Business Supporting

2 Games that have done decently in 2H 2023 would be Doomsday and Viking Rise.

Dooms Day

1H 2023: 0.249B

2H 2023: 0.428B

Viking Rise

1H 2023: 0.122B

2H 2023: 0.285B

Management guided that Doomsday has hit 100 million revenue in March 2024. As such, it would be interesting to see the growth trajectory as a whole.

Conclusion

I believe profits should be better than the 373 million unless too much of the revenue is spent on aggressive marketing. Nevertheless, Doomsday has continued to grow and the APP Business might surprise on the upside as it does not have the 30% distribution of its revenue unlike its gaming apps which will continue to contribute better gross profit.

A Positive Profit Alert is almost guaranteed but how much the amount will likely decide the share price movement.

A Citi Report gave a TP of $4 with a full year profit of 696 million in 2024. I believe there is a good chance that the company will earn above this amount.

I have been wrong before so yeah, sometimes i question if i have to pick up this stock but i have decided to trust my research and go for it.

However, given that I am actually not cash-rich, i have divested some Huationg Global to allocate into this position. 

Previously i have added more Huationg at a relatively high price in an attempt to enter the top 20 shareholders in the annual report for my own yaya papaya pride. Now that portion is over as the annual report is already out long ago, i have decided to trim slowly back to the initial core holdings and observe the business developments.

I could have made a decision when i see the results in August but it was just one of the few rare moments when i decided to go punting to get a better return this year. 

Currently i am capping the exposure at 10% of the Portfolio

However, if the market fluctuations gets much more and start swinging the IGG Share Price to a larger downside amount before the profit announcement or if the H1 profit is much higher than 410 million but the share price remains depressed, then i would be keen to add more %.

Although that would mean by then I will have to rethink the allocation of other stocks based on the economic conditions then.

Time for some K-POP Picture Spam

And Finally for anyone interested in the current returns as of 11 June.

Wee Hur (SGX: E3B) An attempted analysis

 I tried to look at Wee Hur the past few days. Perhaps i will write the verdict first.

At current price of 0.215 as of date of writing (7 June) , i think the student accomodation segment will have to grow its profits massively by at least 40 million to around 60 million operating profit for this company to be worth the risk. The workers dorm portion might not do as well. As such, the gamble will be on the revenue expansion and margin expansion of the student acco segement.

Introduction

Wee Hur is a construction company that has expanded into various fields of operations. As such, it can be broken down into these 5 business segments mainly.

1) Building Construction

2) Property Development 

3) PBWD Operation

4) PBSA Operation 

5) Fund Management 

 At price of 0.215, it represents a market cap of 201 million and a book value of 0.326.

I will be looking at various segments of it individually. 

1) Building Construction

Looking at the above, it does not look good for this segment as we have seen losses in the past 2 years.

Management says they forsee a turnaround in the segment in the near future.

But for the conservative sake, lets just assume this segment will record -5 million in 2024.

2) Property Development.

In this portion, there are 3 things that are on-going. 

(i) Mega@Woodlands, Completed but 96% sold. As such, around 4% (20 units) is left to be recognised. 600k looks to be an average price. As such, this segment is probably 12 million of revenue left to be recognised.

Looking at the margins of 37.5% in 2021 for property development when Mega@Woodlands is the only project, i think around 4.5 million can be recognised from this segment.

(ii) Bartley Vue, TOP in 2025/2026 with 90% Sold. The margins for this segment is slightly lower. Coming in at around 20% based off my estimates. According to annual report, around 123 million is left to be recognised. As such the profit coming in from the next 3 years is estimated to be around 24.6 million.

Considering TOP would have higher recognition, i would probably think that year we would see 8-10 million being recognised while the rest in latter years.

(iii) Mixed Used Development in Australia. Not being valued as details vague at this point.

As such, this year we should see hopefully. 12 million in profits.

3) Workers Dormitory

Now we are getting to the 'fun and interesting' part of things

The company has a 60% stake in the 15744 Beds Tuas View Dormitory

If we take a look at the rental income and expense, this segment contributed around 48 million in 2023. 60% will mean 28.8 million.

59m in rental income but only 10.8m expense

If we use the rate of $500 per bed per month that i have seen for Tuas View Beds Price, this 15744 beds equates to a revenue of 94.4 million in 2024. 

Assuming Margin of 80% as seen above, we can get 77 million profit. 60% will be 46 million.

Wow What an impressive amount. Lets go buy Wee Hur and it can go to the moon already.....oh wait i mentioned in the conclusion that the workers dormitory might not do as well. 

Firstly, there has been an extension of lease at November 2023...........

So is there new terms or are they on the old terms? I mean this is like the golden question since Wee Hur getting the chicken wing or the half chicken matters.

Unfortunately, it does not look good, seems like they have to pay 36 million a year. This means that even at 94.4 million revenue, their profit will be around 58 million at best. Well it is unknown what are the fees or structures involved in this. But if i were to wild guess, probably another 8-10 million in operating expenses.......this will mean a profit of around 30 million at 60% ownership.

As such i guess i will attach 30 million profits. In anyway, my expectation is that it is likely to be lower than what is earned in 2023.

4) Student Accommodation in Australia (50.1% Ownership)

This segment is definitely expected to outperform in 2023 compared to 2022 due to demand factors and students in Australia this year is at record high

2023 Revenue: 77.7 million 

2023 Operating Profit: 20.6 million

Number of Beds: 5662

Implied Revenue Per Bed Per Week: 263 

Centurion 1Q 2024 Revenue Per Bed for Aus Acco: 368

Implied Full Year Wee Hur PBSA Revenue: 108,348,032

Current Occupancy: 90%. Assuming some improvement to around 93%   

Implied Revenue: 100,763,669

Implied Operating Profit Range: 26.6 million to 48 million

What are the things to look out for that might affect the profitability?

(i) Whether the rentals keep increasing, after all there are 2 school terms and this might be a difference maker.

(ii) Number of Weeks being rented out and the Price of each accomodation accordingly. This will depends on how deep the research and diving will be 

(1 of Wee Hur's Student Dormitory Y Suites on Regent, Sydney)

If we based on this, then 47 weeks of AUD 659 or 590 SGD is sold out. This translates to a rate of 533 SGD actually and will result in a much higher revenue and profit estimate.

Bed Minimum Available Prices can range from A329 to A559 depending on locations......which makes the overall of estimating by each area tough due to the wide range in prices.

As such, I think a good estimate will be 40 million SGD Profit. 50% ownership translates to roughtly 20 million SGD.

5) Fund Management

Contributed 2.4 million in profit in 2023 while it was -2.3 million in 2022. As such a safe estimation of 3 million from this segment as this is largely dependent on whether any increase in management in the FY,

Conclusion

-5+12+30+20+3 = 60 million. 4.5 million interest expense in 2023. Borrowings doubled so assume 9 million interest expense

Total profit of around 51 million

Looking at current PE, it seems like it is trading at 4-5 PE. But there are just many things that can go wrong from the calculations. 

For example, workers dormitory might not increase revenue as much in 1H 2024. 

Also my main concern comes from the revenue increase of the student accommodation (too wide to estimate) and the increase in lease payments and whether operating expenses of dormitory will affect.

Of course there are some factors that needs to be credited, the ability to have the scale of 5000 beds and to sell the ownership to reduce leverage and make it profitable in 2023 is laudable. The fair value revisions have been good as well although it is unsure if this would become realised profits.

Like mentioned earlier, there has been a recent increase in share price probably due to some media coverage. I would be more comfortable with a gamble for the upside at around 3 PE as i believe there are too much holes in the analysis above.

Which implies an entry price of around 16 cents. But it still has made my imaginary portfolio nevertheless.

For my own portfolio, I guess i will just wait for the fish to appear at the right price before considering taking a bite