Dream International (1126.HK) Update

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.

(May 2025 Results) How i would invest in the singapore stock market if i had 100k of spare money

 

May 2025 Returns: 10.70%

Year to Date Returns: 29.43%

Since Inception (9 Sept 2020) Returns: 194.47%

Below was what i said in May for End April

April is a negative month as market volatility sets in. One surprise that has got me thinking is Centurion. It has dipped to 1.0x levels before rebounding back.

I have no doubt about this position.

Centurion rebounded in May. with a gain of close to 20%. This along with a rebound in Hong Leong Asia, gains seen across the board like Moneymax all bring the portfolio to a month high gain of 10.70%

YTD Gains of 29%. Very satisfied with the results.

Since i have readjusted already last month, i don't see the need to readjust my positions again.

But i will be putting in the spare cash(dividends) into a position(Hong Leong Asia). The portfolio will look like this.

The next important juncture should be August where companies start reporting result.

(Long Post) Recent Portfolio Update + Dream International Related Update

Finallly have some time to write down a recent update post......was out of town for K-pop.

After 1 of my previous post where i talked about my biggest loss in a day at the start of April, times have quickly flipped very rapidly.

During this period, i have reviewed the portfolio and done the following.

Removed

-Infinity Development (640 HKEX) at price of around 0.77. Current Price 0.96

-Prosperous Industrial Holdings (1731 HKEX) at price of around 0.79. Current Price 0.84

Added

-Dream International (1126 HKEX)

It has returned to pre-tariff levels

Rationale:

When i formed up the portfolio, i base some of my decisions based on the amount of information available and how highly accurate / correlated the results are to the information that i have.

As such, i decided to consolidate my resources into 1 that i have done the most research / have more conviction about. This approach is something i feel more comfortable with.

There is no right / wrong / systematic way to go about doing things as everyone is different and sees things differently. Ultimately, doing what 1 is comfortable with is more important.

As you can see, the prices that i have sold are lower than the current prices so not every buy/sell is 'correct' in terms of result.

Dream International Update: Looking at it from customers and prevailing data / agm views

AGM Update Sharing from Online:

There is increased confidence that the results this year will be better than last year. Adding to the positive investor relations comments back in March when i emailed them, the outlook remains positive despite recent headlines.

Funko:  Revenue decrease in line with guidance, inventory lowered but the target to source outside from China increased from 2/3 to 95% by this year.

Has started to secure extra capacity for manufacturing outside of China.

Spinmaster: 66.4 million in 1Q 2025 for Wheels and Action Segment. 63% higher than 1Q 2024

This represents a level higher than 1Q 2023 (43.8 million) as well, and monster jam was mentioned as a reason for incremental revenue although pos growth is not mentioned.

Also mentioned increased sourcing outside of China from 45% to 70% by end of 2025

Disney: Experiences Segment. New Theme Park in Abu Dhabi, a place i have been to but i really want to visit again if there is good k-pop events..... but probably have to wait for more details

In terms of China, attendance is good but spending is not there. Difficult to assess anything unfortunately. As the term 'spending' is too vague.

Oriental Land: Relatively flat guidance for 2026 (around 3-5% lower than 2025). 1Q 2025 still positive results compared to 1Q 2024 as inventory fall is lower and merchandise sales is slightly higher. My estimate is that it is around 14% higher.

Overall, it is a slightly lower guidance but it is not so far off.

Export Data: Export of Toys and sports requisites; parts in 1st 4 months in Vietnam is 83.6% higher than 1st 4 months last year. In April 2025, it is 2.1 times higher than April 2024. As such, things do look rosy adding to what management mentioned earlier.

Indonesia Factory: Has started to hire and is in operation. Which is a positive as if the companies has troubles, they are more likely to push back operation of new factories.

Vietnam Factory: Still seeing hiring.

Overall, there are still 2 overhanging problems, margins and trade war.

From margins point of view, there is really no way to tell as management did not give anything away as well. This point is probably something that the management will have to work on and as investors , we probably have to trust them. Its not possible to know every aspect of the business clearly.

Trade War. With the China US progress in talks today, this might slow down the pace of sourcing outside of China or might lead to a production back in China if something remarkable happens in latter weeks compared to Vietnam. Also, the extension is 3 months and it remains to be seen what is done in the remaining months.

Conclusion: Based on current available data, for 1H 2025 at least, i believe it will be better than 1H 2024. Of course we are only 4 months in and there is 2 more months of data and future uncertainty.

Meanwhile i will just upload k-pop photos and hope things will turn out well.

Can we see a positive profit announcement for 1H 2025? It might be early days but at least things look good for now such that we might have a chance.

(April 2025 Results) How i would invest in the singapore stock market if i had 100k of spare money

 

April 2025 Returns: -4.80%

Year to Date Returns: 16.92%

Since Inception (9 Sept 2020) Returns: 166.00%

April is a negative month as market volatility sets in. One surprise that has got me thinking is Centurion. It has dipped to 1.0x levels before rebounding back.

I have no doubt about this position.

Other than that, some previous positions i have held before such as Powermatic Data has released a profit guidance citing lower earnings which was what was mentioned in the AGM. Therefore not much surprises there.

At this point i would be making a change again. Playing it to win it. 

Following the poor business update, i have decided to exit Samudera Shipping.

I have also decided to exit Choo Chiang as well in search of hopefully a better opportunity.

In return, i have doubled the position of Moneymax as well as initiated a position in NSL.

Moneymax is just a gold proxy laggard and NSL has became more of Malaysia Precast Player with involvement in Data Centre Projects. This is likely to be a growth in 2025.  With a bit of leeway made in terms of gain so far this year (16.92%), i think i can be a bit more risk taking.

Record Breaking Day of Loss

 

The culprit without any doubt would be Dream International. Clocking in a -16% for the day amidst the news of a record breaking tariffs imposed on Vietnam. 

This brings my portfolio returns down to 8.34% from 22% before today's developments. 

I feel fine actually. i would rather have a 46% tariff than a 46% drop in Disney Thempark Visitorship due to reasons like natural disaster.

No, i have not sold out any shares of Dream. I still feel that it is too soon to sell as the developments are too fluid. Also revenue from US has fell to 42% only where as in 2018 it was 64%. Unless there is convincing weakness seen in asia theme parks, i think i will wait to see how the developments unfold. 

In a recent communication with IR, i have asked if 2H 2024 represents the peak in Asia Theme Park as EBITDA and Revenue is the highest in recent years. The reply i got was

Of course with the tariffs and all, macroeconomy can change.

The company still has more than enough cash to cover its liabilities and still have 15% of its market cap being in cash. I believe they are more well positioned than smaller toy factories.

With regards to shift in production to other countriers.... Mexico has higher staff cost than Vietnam. 

How about moving back the toy production to US?

Unless productivity is 8 to 12 times higher ..... i am not sure if it actually make sense.

How about ASEAN?

The only close competitor will be Indonesia and Phillippines. With 14% lesser tariffs and 29% lesser tariffs respectively.

If we look at labour cost, both countries are higher actually. As such, i have doubts if any of the other countries can pick up the manufacturing.....unless we are moving production to peru , brazil or argentina which also have higher labour cost.

Lastly, it will be the demand factor.......well we just have to monitor companies earnings release and the export figures which will be seen in May and subsequently i guess.

Ending TMI: -11.4% is around 16 months of my take home salary

(March 2025 Results) How i would invest in the singapore stock market if i had 100k of spare money

 

March 2025 Returns: 13.16%

Year to Date Returns: 22.82%

Since Inception (9 Sept 2020) Returns: 179.42%

In the latter part of the month following the changes, Centurion and Hong Leong Asia showed gains, propelling the portfolio from 3% gains as of 18 March to 13% gains as of 31 March.

It is a bit of a surprise as i have thought that folks might want to see the actual demand in building construction + motor in 1H 2024 for Hong Leong Asia first and also the REIT Composition of the Centurion Reit Spin-off.

Nevertheless, this is good news anyway. April is traditionally a slow month while May is a month for AGMs.

(Mid March 2025 Results + Changes) How i would invest in the singapore stock market if i had 100k of spare money

 

As mentioned previously, i will only make changes after some consideration and sometime in March. 

Considering that i will be busy for the next 2 weeks. i will just write down the changes first today.

But first the above is a snap shot of the portfolio before any changes on as of 18 March

Mid March 2025 Returns: 3.67%

Year to Date Returns: 12.52%

Since Inception (9 Sept 2020) Returns: 155.99%

Changed Portfolio as follows

Rationale for Position Removal:

1) Wee Hur - Since i have cut off most of the stake in my own portfolio, i would do the same here as well

I express concerns over the investment properties fair value as well as the AUD Depreciation which would affect earnings and divestment value. However, i do concur that the company will be very strong in financial health after the divestment deal goes through.

If i am free i will attend the AGM...... i don't rule out re-adding back in the future if say prices of dorm rocket again or they give hint of very good special dividends. 

2) Tat Seng Packaging - Although a good consumer theme play in china along with the recent news of consumption stimulations will likely benefit Tat Seng, it was meant to be a short term results play for myself so i will take a look again perhaps closer to its results release again in August to see if i should pick it up as a tactical play again.

Rational for Position Addition: 

Belief that Pre-Cast Demand will be a strong theme in 2025 with many BTOs to be completed.

2 Companies that i believe will benefit are the 2 stocks that I have added.

1) Hong Leong Asia - Perhaps a more diversified play with the China Engine Market, SG Msia construction business. Overall i think that its low utilisation precast factory which is run as a joint venture should finally benefit from this trend.

2) Hor Kew - A much smaller company and much riskier play due to its profitability being very shaky before 2024. As such, the stake is much lower and will explore further to see if there is any chance to add more. One thing i feel is good is that its commentary of future prospect is not a copy paste each year. When they mention about concerns over cost and margins, they do reflect it in the following result. 

1H 2022 Commentary: However, inflationary cost pressures of staff and raw materials may erode the Group’s future profit margins.

As a result 2H 2022 is loss making with lower gross profit margin than 1H 2022.

1H 2024 Commentary: To manage this, the Group has been tendering for projects with prices that are expected to yield higher margins, thereby improving its overall gross profit margin as old projects get completed and newer projects start deliveries.

As a result 2H 2024 Margins is 49% compared to 1H 2024 which is 29%.

2H 2024 Commentary: Demand in the Singapore construction industry was strong in FY2024 and this trend is expected to continue in the coming year. The order books for the Group also continues to be strong.

Companies that i thought about it but did not add / increase

1) Centurion. The belief of the REIT as a short term catalyst still holds. 

2) Hafary. Might be a good BTO boost play but i realised that it has many lines of business and over 30% revenue is not from SG with revenue from SG showing some retracement as well.

3) Far East Orchard: Student Accomodation should still do well but i don't see any near term catalyst to bring the weightage up.