Dream International Ltd (1126.HK) is the world’s leading plush toy manufacturer. The company designs, develops, and manufactures plush toys on an ODM or OEM basis according to customers brand names, cartoons or animated characters.[mepr-active membership=”1734″ ifallowed=”show” unauth=”message” unauth_message=”Please login or purchase a membership to view full text.”] The plush toy segment accounts for more than half of the company’s revenues. Another 43 percent are generated with plastic figures, a segment which grew exceptionally strong lately. The company also manufactures ride-on toys such as tricycles and scooters for kids. Sales in this segment are ramping up, but are still relatively small. The products are manufactured in one of the 17 plants in Vietnam and China.
Dream International has a strong customer base which includes top-tier toy companies worldwide such as Warner Bros., Bandai, Costco Wholesale Corporation, C & H Korea Group, and Funrise Toys. North America is the largest market for Dream International, accounting for around 57 percent of the revenues, followed by Japan with 30 and Europe with 6 percent.
Dream International was founded in 1984 and is headquartered in Hong Kong. The shares are listed on the main board of Hong Kong’s stock exchange since 2002. The company’s shares can also be traded in Germany and the US. Major shareholder is the founder and chairman, Mr. Kyoo Yoon Choi, with an ownership of around 67 percent. The balance is held by the public.
With a workforce of around 18,500 employees, Dream International reported revenues of 1.2bn HKD (147m USD) and profits before tax of 151m HKD (19m USD) over the first half year 2017. This is an increase of 28 and 37 percent respectively compared to the same period a year ago. The company has typically stronger sales in the second half of a year, due to an increased demand for toys in the holiday season. In 2016, revenues and profits were up 19 and 76 percent respectively. The operating margin of 16 percent is only slightly above industry average. Dream International had cash reserves of 316m HKD (40m USD) at the end of June 2017. The company shows a solid balance sheet with good profitability and financial strength. The equity ratio is at high 75 percent and the gearing, defined here as total liabilities to total equity, at 32 percent only.
Dream International’s shares are in an uptrend since November 2014 and more than quadruple in value since, 13 percent increase alone this year. The company is priced at seven times earnings. The shares trade a bit less than double book value and at around seven times operating cash flow. The latest dividend yielded slightly over one percent only.
The company shows healthy financials with good profitability and financial strength. The valuation is low and comes with a price/earnings to growth ratio of only 0.37. The industry outlook is positive with expected annual growth rates in the toy industry of six to seven percent for the next five years.
Assuming a continuous stable global economic development, we expect the share price to increase around 20 percent until the end of this year. Earnings for the full year 2017 will be announced at the end of March.
AIS Rating: ★★★★☆
| 2012 | 2013 | 2014 | 2015 | 2016 | 2017 H1 ONly |
|
|---|---|---|---|---|---|---|
| EPS (HKDcent) | 19.8 | 18.4 | 18.1 | 22.3 | 43.7 | 18.2 |
| Change | 78% | -7% | -1% | 23% | 96% | 48% |
| P/E | P/E SECTOR |
P/B | P/CF | Equity Ratio* |
ROE | LIAB./ Equity** |
Div YLD |
|---|---|---|---|---|---|---|---|
| 7 | 19 | 1.8 | 7 | 75% | 26% | 32% | 1.1% |
* Equity / Total Assets, ** Total Liabilities / Equity
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