Summary
Dream International is a Hong Kong listed plastic and plush stuffed toy manufacturer, with factories based in China and Vietnam. Most of the factories today are based out of Vietnam, which gives a cost advantage on China based producers. The company supplies toys to a limit number of larger companies, such as Disney, Oriental Land, Funko and Spin Master. The company has been growing revenue last 10 years with a CAGR of 12%. This has accelerated last 3 years to a CAGR of 21% for revenue and 38% for EBITDA. Although profits have been accelerating, the company is trading at a trailing P/E of about 6.8. Usually when something is trading so cheap, there is some catch, or is this the holy grail of Growth At a Reasonable Price (GARP)? I will try to give my views of what I have been able to find.
+ Fast growing company trading below 7x P/E.
+ Exposure to segment of toys with high growth (Marvel superheros, Star Wars, Disney figures etc).
+ As one of the worlds largest plush stuffed toy producers, Dream has a long track record with large customers like Disney.
+ Recently expanded the customer relationships to plastic toy sales which has given explosive growth and earnings.
– Poor liquidity in the stock.
– Old (69 years) majority shareholder and CEO, unknown what his plans for the future are.
– Probable margin deterioration due to higher material costs (mostly related to oil price).
– Recently bought it’s office premises in Hong Kong for 200m HKD instead of continuing to rent.