Friday 4 August 2023

Previewing Dream International 1H 2023 (Unlikely to be Good) (Deep Dive)

Dream International is currently my 2nd largest position in my portfolio this year.

After gathering various sources of information, i will be sharing my view with regards to its upcoming results. The TLDR Version is that i think it will not be good but i will hold onto it putting my faith in the teddy bears.

As Dream International usually releases its profit guidance on 2nd to 3rd week of August and its Half Year Results at the last week of August, we will see if there is any guidance as well this time around.

The company has a spectacular record of releasing either a positive profit alert / profit warning as per the table below.

Financial Year

Profit Announcement

2022 1H

Positive (3x in Net Profit)

2021 1H

Negative (43 – 53% fall in Net Profit)

2020 1H

None but Profit fell 30%

2019 1H

Positive (Considerably Higher but % Not Mentioned)

2018 1H

Negative (Considerably Lower but % Not Mentioned)

2017 1H

Positive (Amount not mentioned)

2016 1H

Positive (Amount not mentioned)

2015 1H

Positive (Amount not mentioned)

2014 1H

Negative (Amount not mentioned)

Looking at stats, 5 Positive 4 Negative, we can bet on it being positive... oh wait no its not Baccarat sorry.


Dream International is a global toy manufacturer that manufactures plastic figures and plush stuffed toys. Its plants are in Vietnam and China.

At end of 2019, it has 4 plants in China and 15 plants in Vietnam. 

At end of 2022, it has 7 plants in China and 20 plants in Vietnam.

Perhaps an interesting stat is that in 2019 revenue is 3.9 billion HKD while 26717 staff is being hired.

In 2022, revenue is 6.2 billion HKD while 28924 staff is being hired.    

In terms of the Plastic Figure Segment, the most notable customer would be Funko

In terms of the Plush Stuffed Toy, the most notable customer would be Disney

In terms of the revenue spread, the 2 major segments revenue and profit is as follows

As such, we can conclude that 2022 had a much higher margin and in terms of profit, plush stuffed toys has overtook plastic figures in 2021. 

In fact, revenue has kind of peaked in 2022 2H for plastic figures compared to its amount in 2021 2H.

Some of its ratios that i just plugged off from Stockscafe.

Why i believe results might not be good

1) Funko Depression

The elephant in the room is probably Funko, Although it has recorded an increase of contribution from 1.6 billion HKD in 2021 to 2.1 billion HKD in 2022, Funko has reported its 1H 2023 results and while it was already expected to be bad, there was a downwards revision of around 10% of revenue.

In its earnings call, management has spoke about ordering less as its strategy for now as it is trying to digest inventory and to avoid over inventory problems as it wrote off inventory in 1Q 2023.

This replicates what Dream International mentioned in their FY as customers might have inventory pressures.

In my own analysis, i estimated that around 27 to 35% of Funko's sourcing is from Dream International. While on Dream's end, Funko accounts for around 34% of its revenue.

In fact, in recent years, the movement in additional orders from Funko has been same direction as its Dream's revenue from Funko.

As such, in 1H 2023, the estimated addition is 283 Million USD, which is 40% lower than 2022 1H addition and as such we can estimate a similar fall in revenue as well from Dream's Plastic Figures Segment.

To prepare things for the worst, i emailed Dream hoping to get a reply on whether the reduced orders are from other partners or does it include Dream as well. Fortunately i got a reply but unfortunately it is not good.

2) Bad export data from Vietnam

1 critic of my research from an interviewer is that i tend to not include macro analysis. As such, i went back and crunch some figures to find some macro numbers.

Unfortunately, Vietnam's exports classify toys as under the segment of 

'Toys, games and sports requisites; parts and accessories thereof'

As such, a pure figure cannot be achieved but at least a reference can be achieved and it paints the same negative story as US Exports is down -25%. While EU has recorded a good increase, Dream has very little revenue to EU so while it can be done, it would be something out of the data.

I went to crunch a bit more numbers to see if the story matches in 2021.

While not exactly the same magnitude, the increase is quite apparent. As such if i look at export numbers, i estimate at least another 25% fall from Funko and US in general. Once again it tallies with part 1.

If by now you can still read on further and want to know why i would be holding it till at least the results or any guidance is announced, do read further 

Points of Optimism or just Chicken Soup

1) Oriental Land Boomz

Oriental Land is the operator of Japan Disneyland and Disneysea. As mentioned previously, it is a key customer of Dream. In fact, Dream's revenue to Japan has doubled from 490 million in 2021 to 1.1 billion in 2022.

In fact, the revenue from its 2nd largest customer (Believed to be Disney) increased from 480 million in 2021 to 1 billion in 2022.
Dream has also attributed the growth to theme parks welcoming crowd. Fortunately this looks like it has kicked on to a higher level in 2023.

I pulled out Oriental Land's Inventory level and merchandise revenue for 1H 2023. Both of which are significantly higher than 1H 2022. A figure i forgot to include was Jan 2022 to March 2022 but it is around 18214.

As such, merchandise revenue at Japan Disney in 1H 2023 was around 72000 while in 1H 2022 it was around 42000. An increase of more than 50%.

Looking at this and the higher inventory level, i believe there will be seep through impact to Dream.

The caveat to this analysis will be
1) How much capacity is available to produce more bears
2) Export figures do not indicate any double digit increase to Japan

For Point 1, i believe there is still ability to raise the production as utilization rate is only 80%.
There is also the option of doing overtime.

For point 2, there is no rebuttal but the category is too wide to be specific, for what we know badminton rackets could have reduced demand as folks decided to go for China made ones. Also we have to think if the increase in China Plants could be the one that exports to Japan instead.

2) Positive Results from USS and Sega

Perhaps to a much lesser extend, Dream does produce for USS and Sega as well.

(I had to google to find out this was Anpaman from Sega?.
(I believe so...maybe its bandai but my research shows that Sega is a customer either way)

I am much more certain on Sega but less so for USS (Although in a human rights report 2012, it has been reported that Dream does produce for China and Japan USS Disney)

As such, from Comcast's theme park segment which is Universal Studios, we can see that there is a rebound in revenue.

Currently results look good for Apr to Jun 2023 for Sega. Jan to Mar 23 also came in at 46% higher revenue.

Overall, the Japan Sentiments looks strong.

3) Dream Vietnam Operations Information

By now my head would have hurt trying to process the info, but that's investing on a deep dive basis and it is to assess the pros and cons.

Sometimes googling the company's factories brings wonder after using google translate. I am always happy to be able to find more information even if the information might be 1) Misleading. 2) Irrelevant to the grand scheme of things. 3) Give too much Chicken Soup Assurance. After all, it is up to the reader to interpret the information read.

To do a layman version, we go from the top to bottom.

1st Google Dream Plastic Ninh Binh as it is a subsidiary found on the Annual Report of Dream International.

Yup i saw Dream International Logo hence it is the right company.

 I found this article on Dream on 8 Feb 2023 published in a vietnam news portal. Glad to hear that there has been no major retrenchment or layoffs which is common when demand is low.

Another information found indicates hiring of 200 staff when the previous reported is 1000. Hmm that is some food for thought but i am always glad that a factory is hiring compared to a factory that is not hiring.


As an opportunist who wants to flip the prata for a good results and make gains and run road, i would not have picked Dream International for the upcoming flipping as the elephant in the room is that Funko is the headwind.

If i were to look at the segment profits, margin has been dominant in the teddy bear segment and this relates to the theme parks which has been strong.

Company wise, it has been hiring despite the Funko drop in revenue and possibly orders from Dream.

The last time Funko had lower revenue, Dream posted an overall drop of revenue as well but it was less than 10%. In fact, Dream's revenue has been increasing from 2018 to 2022 with 2020 being the exception.

Profit was the bigger issue as raw materials cost affected profit in 2021 and 2020, as such despite higher revenue in 2021 compared to 2019, profits is more than 50% down.

A possible reason will be the price of PVC, price of PP and price of ABS. All of which commonly used in toys.

All of which showing a higher level in 2021 compared to 2023.

Given the analysis of the above, knowing the plastic figures segment will have lower revenue, it is up to the company to see if they can source for new customers to that segment as well as optimize to improve the margins.

I am hoping the teddy bears work wonders and cover the shortfall from plastic figures. With an investor relation that actually bothers to reply, i am somewhat more inclined to hold it longer.

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