Dream Int'l (1126)

2009 results were in-line with my expectation.  The company's CFO said before that he will consider paying out one-third of the company's profits as dividends.  The EPS being HK$0.11/share, he's paying out HK$0.03/share (instead HK$0.04/share), which is why the market was disappointed and stock dropped 16% yesterday (and technically, some profit taking as well).  In my view, the stock is fairly priced at this HK$0.60-0.80/share level.  HK$0.60 represents a dividend yield of 5%, which is fair.  Judging from things that have been unfolding in the world, and well as the big order from Brazil, the company should be able to sustain its profitability at the current level for 2010.  So the question becomes - if you own the stock right now, what should you do?  Well, I think there's limited room for stock price appreciation as this point (and not a lot of downside risk either).  If you are ok sitting on a stock with 5% dividend yield and 5.5-6.0x P/E, then hold.  But if you have opportunities to earn a higher return, then you should consider selling down your position gradually.

I am current studying a 庄家股, which is something that I don't normally do.  But this one is interesting in that the company had a change of management in recent months.  There's a business unit that's generating good recurring income, and the company is sitting on a lot of cash and with little debt.  P/B ratio is 0.1x right now - there's so much value to be unlocked in the company, but obviously, the risk is if the company's new management continues to pillage the company, then the stock you buy will become worthless.  But if things go in the right way, then the stock could easily go up 4-5x.  Anyway, I'll share the idea upon more research.

good news on 1126: 德林國際(HK)獲1,800萬美元新訂單

德林國際(HK)獲1,800萬美元新訂單

鉅亨網新聞中心  (來源：世華財訊) 2009 / 11 / 16 星期一 17:37

德林國際宣佈，已獲得一份價值1800萬美元毛絨玩具銷售合同。
德林國際(01126)11月16日發佈公告稱，公司已經從一位來自巴西的新客戶獲得一份價值1800萬美元毛絨玩具銷售合同，預期09年底前會完成其中約220萬美元的銷售，其餘將於2010年5月底前付運。
(劉國輝 編輯)
免責聲明：本文所載資料僅供參考，並不構成投資建議，世華財訊對該資料或使用該資料所導致的結果概不承擔任何責任。若資料與原文有異，概以原文為準。世華財訊資訊中心：editor@shihua.com.cn 電話：010-58022299轉235

Still in the game- Hong Kong Standard

Still in the game

Derek Yiu

Monday, November 09, 2009


The toy industry was badly hit by the credit crunch last year. Poor consumer sentiment in the West saw key players such as RBI Holdings (0566), Kiu Hung Energy Holdings (0381) and Matrix (1005) turning in lackluster performances.(......Con't)

德林走出低谷 擬派末期息

德林走出低谷 擬派末期息

2009年9月29日

【明報專訊】毛絨玩具製造商德林國際(1126)執行董事總經理李泳模表示，公司業績已「見底」，相信經營將會持續改善，現正考慮在全年度業績時派末期股息，派息比率或達盈利的三分一，唯他強調，對經濟前景仍較為謹慎，派息與否需視乎全年業務表現。德林上半年業績轉虧為盈，錄得盈利3890萬元，不派中期息。

他 績稱，玩具業整合令部分競爭對手遭淘汰，市場整體產能下降，令公司市場佔有率增大，聖誕接訂單情因而按年有所上升。他相信，公司下半年銷售額將有望繼續 提升，並有信心毛利率可維持上半年27.3%的水平。另外，公下半年資本開支約300萬美元，主要用於越南新廠投資及營運。

Dream Int’l (1126.HK) 2009 interim results

The 2009 interim results of Dream Int’l (1126.HK) came out last Friday night and was better than I expected, with sales growing 13% YoY and gross margin being very strong at 27% (up from 13% in the first half of 2008).

The Company also booked a $21m gains from disposal of Jiangsu plant (originally thought it would be booked in second half of 2009) and paid 6% effective tax rate (thought it would be 15%).

So overall net profit was $38m, which is a great number. The Company’s balance sheet is very strong with $200m cash and $50m debt, and it also seems to be managing its working capital well.

I expect the Company to make another $30-35m in net profit for second half of 2009, bringing total net profit in 2009 to $68-73m. And I anticipate that the Company will resume paying dividends for full-year 2009 (after skipping for 3 years) of 0.05/share.

Given the strong set of results, I think the Company’s share price should reach $0.60 (1x P/B) within two months, and $0.80 within a year (7x P/E, 6-7% dividend yield).

RECOMMEND BUY NOW AT $0.42. TARGET $0.60 BY NOVEMBER 2009 AND $0.80 BY SEPTEMBER 2010.

p.s. you may download the interim report from: http://www.dream-i.com.hk/tc_chi/announce.html

Dream (1126.HK), AMVIG (2300.HK), HuaFeng (364.HK)

After reviewing the interim results of Sewco (209.HK), I have revised downwards my sales expectation for Dream Int'l (1126.HK) in 2009. On the other hand, Sewco's gross margin was much better than I expected (i.e. rose from 5% in 1H'2008 to 15% in 1H'2009). Sales decline and margin expansion should offset each other to a large extent for the bottom line. Overall, my expectation for Dream Int'l remains the same. Dream Int'l will have a great year in 2009.

Two new stock ideas I developed --

AMVIG (澳科, 2300.HK, $3.4 now)- stable cigarettes packaging industry, AMVIG is #1 market leader with 12% market share, stable margins, strong cash flow, net cash position (i.e. cash > debt) after recent disposal of an under-performing subsidiary. Stock price has been over-penalized these days. Target price is $4.8-$5.4, representing 12x of what I see as the normal, post-subsidiary disposal EPS of $0.40-$0.45. Big upside if the company pursues further business acquisitions or if there's a privatization / takeover bid (AMVIG would actually make a very good MBO/LBO candidate).

HuaFeng (華豐, 364.HK, $0.33 now) - reputable textile company, Huafeng has demonstrated resilience in earnings during economic downturn. EPS for 2009 is expected to be around $0.075 (excluding one-time gain of $0.06), representing 4.4x P/E. P/Book is 0.33x. Management has publicly said that there has been a pickup in orders since June 2009. Huafeng has net cash of $267m (vs. market cap of $409m) that should support generous dividends for next few years. Target price is $0.52-0.60, representing 7-8x (which is the normal, mid-cycle P/E range) of expected EPS in 2009, without giving any consideration to the net cash. Big upside if the management declares large special dividends.

I don't think I'll be able to come up with any more new stock ideas for next two months (it's a very time-consuming process), but I'll *try* to post weekly on this blog for updates about companies that I have recommended and/or other general market observations and/or interesting research reports that I come across (e.g. the JPMorgan one).

德林國際(1126.HK)

德林國際(1126.HK)的股價今天再漲18%至$0.42，而且成交量進一步上升。我認為，短期內(8至10個月)合理價格應為$0.60(代表還有40％上漲空間)。但極短期內(1至2個月)追貨有一定的風險。

p.s. 我正研究另一間上市公司(製衣業的)，如結果值得分享，我將在兩至三個星期內張貼。

德林國際(1126.HK)

德林國際(1126.HK)的股價今天漲了22%，而成交量配合且是近月之最，但股價仍然遠低於其內在價值。建議在$0.31-0.33附近累積。

德林國際(1126.HK)的中期業績

另一毛絨玩具製造商祟高國際(209.HK)將於9月21日公佈中期業績。你應注意該公司的整體盈利能力，特別是毛利率。這對德林國際的中期業績(於9月25日公佈)有參考作用。請注意，德林國際歷來的利潤率均高於祟高國際

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.

- Blogmaster

德林國際(1126)

近日我和德林國際(1126)的一位高層管理人員交流。儘管他沒有明確說明，我得到的印象是公司預計在2009年可以取得良好的業績，以及公司可能選擇不支付中期股息（即2009年上半年），但分發全年股息的可能性很高。公司將在本月底公佈其2009年上半年業績。

此外，我又花了兩個星期研究這個公司，我堅信，股價將在兩年內超過$1。

Share price to go up 150%-200% within one year

A listed toy doll manufacturer has lost money in the past 3-4 years and has stopped paying dividends, but there are signs that the business will turnaround in 2009. The reasons are:

Macro environment

a) improved industry structure as half of the 8,000 toy manufacturers in China folded in 2008 (so less price competition, etc.)

b) better operating environment (e.g. less RMB appreciation, slower labor rate inflation, lower oil price)

c) inventory re-stocking of US and Europe customers in general after running down their inventories in 2008

d) Chinese government increased export tax rebate from 11% to 14%

Company-specific

e) company received new significant orders received from Disney

f) company streamlined cost structure (e.g. layoffs, moving factories to Vietnam)

In fact, some evidence of business turnaround can be seen in the company's 2H'2008 results, where it managed to achieve a small profit (the first profit-making period in the past 3-4 years). The Chairman also sounded cautiously optimistic in his statement in the 2008 annual report. Interestingly, the Chairman of another listed major toy doll manufacturer said he expected a profit in 2009 (vs. significant loss in 2008) and that 1Q'2009 margins were strong, providing important clues to what is to come in 2009.

Besides normal operations, the company is selling one of its factories in China for HK$60m and will book a gain of HK$20m in 2009. Given all the above, the company will likely report strong results in 2009 (HK$40m+ according to my estimation).

The company has HK$196m in cash and HK$145m in debt as at the end of 2008, and with the HK$60m proceeds from the factory sale and improved business performance, there's a good chance that it will resume dividends in 2009. If the company pays a special dividend totaling its net cash (HK$196m - HK$145m = HK$51m) and the factory disposal proceeds (HK$60m), that HK$111m would represent 67% yield (!!!). I don't actually think the Chairman would do that, but that is just to give you an idea of the extent of the dividend possible. Even if the Chairman dividends out the factory proceeds only, the dividend yield would still be 36%.

Anyway, if both the strong results and the dividends happen, share price could easily go up 150-200% within one year, and more within 3 years as the company fully recovers. I think a sustainable, ongoing dividend level (3-4 years down the road) for this company is HK$0.07-0.09. Assuming a required dividend yield of 6-8% (consistent with historical average for this company and its peers), the theoretical share price should be $0.9-$1.3.

The P/Book and P/Sales ratio for this company are 0.4x and 0.2x respectively.

The caveat is that the trading volume is very thin, and one must be patient about "collecting" shares in the market over a period of several week to avoid "jacking up" the share price unnecessarily. The volume should increase dramatically if the company announces strong results and/or resumes dividends.

One risk for this play is if the strong results and dividends DON'T happen, then your money may get "stuck" until the trading volume comes back (well, if you put in $50k, you should still be able to get out easily, but if you are invest $500k, then it'll be much more difficult). That said, I do very strongly believe that good things will happen in 2009, and weighing the potential risk and return, and assuming that your investment horizon is at least 12 months, I would still highly recommend BUY.

The company is Dream International (德林國際, 1126.HK).