Some thoughts on my portfolio

 

(Somewhat accurate depiction when i try to think about the results of the stocks in my portfolio)

It is coming to the end of August and stocks in my portfolio have reported results. I will give my quick thoughts before giving a more detailed and very boring thought on individual companies.

Quick Thoughts

Dream International: Overall A-, the 65% profit gain , dividend and margin of plush toys is really an A+. The reason for its A- is that it guided for 65% profit gain in its positive profit announcement and it delivered exactly that (no surprises) and it's plastic figures segment fell slightly more than my expectations.

Huationg Global: Overall C. I have shared it on my facebook post here . The TLDR version is that margins are all over the place and it has missed my absurdly high expectations.

Mainland Holdings: Overall B. Despite a profit fall of 23% and EPS fall of 27%, this was within expectations as an interview in May/June 2023 has revealed that performances would be weaker and i was prepared to see a drop in revenue and profit. There are a couple of bright spots in terms of cash flow and some comments with regards to the business operations. All in all a B Grade.

Portfolio Thoughts

In terms of keeping them on the portfolio, it is a completely different story. I actually am thinking of selling all 3 actually. 

The main reason is opportunity cost. I do not see any of them having any significant rise in share price in the following 6 months. They will unlikely be reporting any results and unless there is significant ownership or coverage, is unlikely to see any appreciation in share price. 

Any meaningful rise in share price will be unlikely this year and perhaps will only be seen if they manage to do well in the 2H 2023.

But at the same time, a factor that is putting me off is that if i were to do this, i will have to put in some large effort to research companies to put the conviction on, after all this is one of the rare few times in the past few years where certain parts of my research actually was somewhat accurate.

Which then again, when you do new research into companies, you are usually unsure if your research and estimations / expectations will tally with the results as well as what the market expects.

Going back to the basics of finance 101.

1) Dividends are declared by the company,

2) Profit and Revenue is determined by the operations of the company as well as the demand supply factors affecting the company

3) Share price is decided by folks who actually want to own these shares.

I will probably need some time to think about how desperate i want to hit my aim next year and whether these companies can do it or i should try my hands at a new company.

Detailed Thoughts

1) Mainland Holdings

My view is that results should get better or at least i should start to see more intersegment revenue for 2H and we will then reassess across 2H 2023 and 1H 2024 if the margins start to improve.

Given that a new plant was completed and the amount of staff actually decreased, this is somewhat a shock as it goes against the common sense of manufacturing. As such, i would like to see how the margins . According to online sources, the factory was completed somewhere around late April or early May hence the 2H 2023 should start to see this factory going into productions.

Probably 2 calls for concern was that A) the Mexico base would incur higher cost than expected,

Initially in March the estimation was 6.75 million USD

In July the contract price was 12.11 million USD

B) Financing cost has doubled.

In terms of balance sheet analysis, i think these 6 months have been good cash generation

Total liabilities decreased more than total assets. Cash position increased while borrowings and payables have seen a decrease. Receivables and Inventory have also decreased.

Overall i would say it is good for the cash flow. Although i still cast my queries on how financing cost has doubled.

I am not sure what reactions the market might have but i will probably wait to see if there are any news articles or interview that is released with regards to the 1H 2023 results before assessing further.

2) Dream International

It is strongly advised that the my previous detailed writeup is read before reading on.

I have mentioned about the strength of the plush stuffed toy segment due to theme park and it has indeed worked out. Much better than i thought

The EBITDA Margin for Plush Stuffed Toys came in at 30.17%. This is the highest in the past 3-4 years.

Looking at the geographical breakdown, we can easily ascertain that most of the margin contributions should come from Japan and China. This is because the increase in plush stuffed toys segment coincides with Japan and PRC revenue increase and to a small extent, Hong Kong.

My initial thoughts after the seeing the results are

1) Are the margins sustainable?

2) What were the main factors in making these margins so high?

3) How far are the orderbooks being placed (as such to estimate the certainty/ uncertainty)

4) Was revenue increased in Plush Toy Segment as a result of production or rise in prices?

5) How lean are operations? Are the segments interchangable for the plants?

Q5 popped up as i read this.

As usual, i went to email the Dream Investor Relations to see if i could get a reply. The summarized reply is as follows

1) Many parts of production process are interchangeable between segments. Currently Plush Factories is higher than Plastic ( which means that Plush is actually more labor intensive and as expected)

2) Theme Park Sales to Asia are of high quality and as such have better margins. Stable Raw Material Cost was also a crucial factor.

3) Increase of over 30% in production volume for Plush Stuffed Toys imply that the price increase if any was minimal.

4) Orders are placed 4-6 months before shipping date.

Therefore, the focus on raw materials and Asia theme park performances will continue to be crucial. In my previous analysis i have mentioned on it as well.