Folks who have seen the previous post on Previewing 1H 2023 , FY 2023 and 1H 2024 would not be stranger to such a post. Dream International 1126.HK has been on my portfolio for some time.
Writing the Conclusion First: 2H 2024 should outperform 2H 2023 in terms of both revenue and profit.
After being wrong when i thought that revenue growth is likely in 1H 2024 but revenue turned out to be -8%, it really takes some guts or being bonkers to write such a previewing thought/prediction.
After all, i do see many mixed indicators that means that making a prediction is difficult.
I have based my prediction based on the following factors
1) Smartkarma Research Report (In a post on 10 Dec, they mentioned they met the management and summarize the majory takeaways)
- Mentioned that there is decent growth momentum for Plush after slow H1 FY 24(-5%). FY24 could be record year for Plush.
- Mentioned that de-growth could be seen due to prolonged destocking cycle in NA and lack of a hit movie lineup resulting in lower action-figure sales
- Not much clarity on margins as usual
- Not much concerns on dividend currently
- Apart from Indonesia Plant (Small Plant that contributes additional 3-4% max revenue) there is no other expansion plans
2) Oriental Land Q3 Results and Looking Ahead
-Weaker than expected Merchandise Sales coupled with weaker expected visitorship
-Surprisingly, inventory did pick up , showing some promise as Toy makes up 48% of Merchandise Revenue
-To put things in retrospective, inventory levels were as follows (in Million of Yen)
Q2 2023: 16724
Q3 2023: 16523
Q4 2023: 12893
Q1 2024: 9381
Q2 2024: 12621
Q3 2024: 16300
- Looking forwards, figures from Yosocal and other sources suggest that Q4 2024 of Themeparks are stronger than Q4 2023. With Disneysea being the main driver. Figures can range from +10% to +28% depending on various sources.
Along with the guidance seen in the research report, i think it forms up a credible link / story. 2H 2024 would have to be much higher than 2H 2023 given that 1H 2024 is
3) Funko Q3 Results
-After 7 Quarters of Reduced Inventory, Q3 2024 finally has seen an increase in inventory to service demand during peak shipping months
-Despite a -2% reduction in revenue, according to the earnings transcript, COGS was reduced as freight cost and duties came down . Fortunately no mentioned of lowering of cost due to production
-On the issue of tariffs, 1/3 of products are manufactured in China and will continue to work on plans to further diversify away. (Dream's Vietnam and upcoming Indonesia Plant might come to play)
4) Export to US (Toys)
-Based on official custom sources, export of Toys and Sports Requisites to US is up 22.6% in 2H 2024 compared to 2H 2023. This actually represents an increase since 2022 vs 2021.
- In previous semi-annual results, the decrease in exports has also seen a decrease in Dream's US Revenue. Therefore, this seems fairly accurate
- In a much less accurate statistics of toys imported into US from Vietnam, there has been an increase of 26% from Jul 24 - Nov 24 vs Jul 23 - Nov 23. This is less accurate as in some years it could show an increase but Dream's revenue still decreased. It could be things like time lag between shipping etc or just items moving past Vietnam into US but not actually produced there.
5) Spinmaster's Monster Jam Positive Growth
-16.5% Growth Pos Metric in Q3 a positive amidst a high revenue mark in 2H 2023 for Monster Jam.
- However, new products e.g remote controlled car is produced in China and not Vietnam, indicative that full growth might not seep down and benefit Dream as Dream does not do die-cast in China.
Why i might be very very wrong
1) IIP Production Down
Index of Industrial Production (IIP) of Vietnam for Manufacture of Toys, Games is a rather accurate indicator thus far.
When the IIP is down YOY, revenue of Dream is also down YOY. With the index down 5.96% for 2H 2024 vs 2H 2023, this is one of the biggest stumbling blocks.
Fortunately, this tends to reflect in the Plastic Figures more compared to the Plush.
2) Management Self-Guidance of Plastic Figures Growth Down
-Despite the other factors looking well, this still holds much credibility although we are not sure when the meeting was actually done and as such we still have to keep a watchful eye over a lower revenue from Plastic Figures.
3) Unexpected Weakening of China Themepark Consumption Figures
-The weakening of consumption might linger or play a part although we still have to go back to management guidance as the 'likely indicator'
4) HK Disney Visitorship Down
-Consumption Downgrade. HK Retail Sales down 7.3% in November
-Visitorship likely down 9% in 2H 2024 vs 2H 2023. Considering Revenue from HK in 2H 2023 is high at 180 million, makes up 13% of Plush Revenue.
-Tourism seems strong though, 7.2% growth in November 2024 vs 2023 for overnight stays
5) Funko Guidance still bad
Not unexpected as guidance was already crap at the start of 2025 but its still a lingering factor.
6) Export to Japan
-Based on official custom sources, export of Toys and Sports Requisites to Japan is lower by 21% in 2H 2024 compared to 2H 2023.
-This cast a doubt to whether revenue to Japan will actually be up like mentioned in the research report.......
Conclusion
The indicators are all over everywhere......its a meme fest really. The results in March 2025 will be a rollercoaster one as most of the indicators will get refreshed and some of them will either become less useful or much more useful.
The smartkarma report definitely was somewhat helpful although the information on the plastic figures segment got me scratching my head for sure.
Lastly, it is very rare that a company's share price has grown since showing a 17% drop in profit......Dream has shown this and probably indicates that it is still cheap despite a 17% drop in revenue or folks are positive towards its results being good for 2H.
K-POP Pictures Spam Time.
Plastic Figures Revenue Increase: 8% vs 2H 2023
Plush Figures Revenue Increase: 30% vs 2H 2023 (Assuming record breaking revenue for Plush)
Slight reduction in Margin across both segments.
Overall 17.6% Increase in Net Profit in 2H 2024 vs 2023
86.3 cents EPS in 2H 2024.
Along with 41.2 cents EPS in 1H 2024, a total of 127.5 cents in FY 2024.
Bear Case: Record FY for Plush is not true(0% Growth vs 2H 2023), Plastic Figure Revenue Growth Negative(-8% VS 2H 2023). Margins Shrink as Economies of Scale not achieved
25% Chance of Happening
Normal Case: Plush Growth (8%-10% vs 2H 2023) , Plastic Figure Slight Negative (-3 to -5% vs 2H 2023). Margins perhaps 100 basis point lower / 1% lower.
40% Chance of Happening
Bull Case: Record FY for Plush. Growth (25% to 30% vs 2H 2023), Plastic Figure Slow Growth (3% to 8% vs 2H 2023). Margins 50 basis point lower to 150 basis point higher)
30% Chance of Happening
Wild Crazy Bull Case: Record FY for Plush. Growth (30% to 40% vs 2H 2023), Plastic Figure recovers(15% to 30%) along with recovery seen in export figures to US and Funko. Margins improve 50 to 300 basis point higher due to economies of scale and improvement in production due to increased use of automation etc.
5% Chance of Happening
For myself, if the results in FY 2024 is the same or higher as FY 2023, it would be good enough.
