Dream International (德林國際, 1126.HK)

I am reading the book, Security Analysis, by Graham and Dodd. I will put Dream International (德林國際, 1126.HK) in context and see how well it fits the authors' value investing criteria, and share my sights later here.

Those of you who bought or are waiting to buy the stock must be anxious to see the Company's 2009 interim results that are due in late September. I would note that for a toy manufacturer, revenue in second half of the year is typically 30-40% higher than that in first half, because of Christmas orders. And due to the presence of fixed costs, net income is normally more than 30% higher in second half compared to first half. So one would likely underestimate the full year result by simply multiplying first half result by two.

I did a back-of-the-envelope estimation of Dream International's 2009 financials, and I'm hopeful that the Company can achieve HK$10-15 million net profit for first half with no interim dividend, and HK$45-55 million net profit for second half with full year dividend of HK$25-30 million or 4-4.5 cents per share. And I would say that while I have a reasonable chance to be off for first half, I feel very confident about full year. If that happens, after full year result announcement and dividend resumption, share price should go above $0.60 (more than double current share price).

And for those who bought already, I would preach that you be patient and hold for at least 8 months. I know it's difficult to do, but whenever you have an urge to sell, just think about how much upside you will miss by selling early.

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