Matters:
Hong Kong Meisheng, a wholly-owned subsidiary of the company, issued a “Letter of Intent to Invest” to JAKKS on January 26, 2018. It intends to subscribe for JAKKS's newly issued common shares at a price of $2.95 per share through a cash subscription method, and ultimately hold 51% of JAKKS's shares.
Key Views
1. Meisheng+Jakks is among the top five toy companies in the world, expanding its global influence
JAKKS Pacific, Inc. (hereinafter “JAKKS”) is a toy company mainly engaged in the design, development, production, marketing and distribution of children's toys and other consumer products. It is the third largest toy and anime apparel company in North America. It was listed on NASDAQ in 1996. Since its establishment in 1995, JAKKS has been committed to the design, development, production and sale of IP derivatives and related products. Its products include products with its own intellectual property rights, as well as products authorized by many major entertainment production companies, bringing together multiple product lines and well-known brands.
The company started with the anime apparel business and formed a long-term partnership with JAKKS as a supplier in 2006. In the first half of 2017, Hong Kong Meisheng, a wholly-owned subsidiary of the company, invested in JAKKS and held a total of 19.50% of JAKKS's shares, making it the largest shareholder. This increase in holdings will increase the company's shareholding ratio and voting power ratio in JAKKS to 51%.
2. Deepen industrial chain collaboration to form complementary channels, IP, categories and costs
As a top IP licensor such as Disney, JAKKS has world-renowned IP licensing resources. The company intends to further invest in holdings. Through close and harmonious cooperation between the two parties, the company will deeply adapt to JAKKS in the design, development, production, and sales aspects of the entire IP industry chain to achieve a close connection between the resources of the two parties.
(1) JAKKS will share many top brand licenses with the company, including famous brands such as Disney, Star Wars, and Nintendo, which will have a strong synergistic effect with the company;
(2) JAKKS has high-quality sales channels such as Wal-Mart and Target, which complement the company's overseas terminal channels. The company will strengthen the overseas toy market through JAKKS's sales channels, enhance its IP influence, and accelerate the layout of the global derivatives market;
(3) JAKKS has many years of experience in toy R&D and design to help the company improve its R&D and design capabilities at the upstream end of the IP industry chain;
(4) JAKKS's main products are plastics and dolls, expanding the company's toy and derivative product categories to bring new product lines and profit growth points to the company
3. Steady and steady expansion of global channels around core business mergers and acquisitions
In the short term, the company helps JAKKS control costs in the procurement process, enhance JAKKS's profitability, and increase its own profits.
Looking at the medium term, with the launch of Frozen 2 in 2019, the company's performance can be expected to increase.
In the long run, with the collaboration of Meisheng+JAKKS. The company's global channel construction in North America, Asia Pacific, etc. has been continuously expanded, and efforts have been made in brand management. The company's card derivatives business in recent years has initially established an entire IP operation industry chain that runs through all aspects of product development and design, production, distribution, and sales.
On the one hand, the influence of their own IPs such as Uncle Tongdao continues to increase; on the other hand, the company's layout in the Asia-Pacific region continues to expand, and it is expected that it will continue to increase its market share in the global extension products market.
4. Investment advice
The company's acquisition enhances its influence in the global toy market and strengthens its comprehensive strength in various fields such as channels, IP licensing, and toy categories. As the number of company orders increased and JAKKS consolidated, we adjusted our profit forecast. The company's net profit for 2017/2018 is estimated to be 347/604 million (the original forecast was 377/466 million yuan), corresponding to EPS 0.38/0.66 (the original forecast was 0.41/0.51 yuan), PE was 49/28 (originally 46/38). Based on 35 times in 2018, we gave a target price of 23.1RMB to maintain the “recommended” rating.
5. Risk warning
JAKKS earnings fell short of expectations, and the growth rate of the global toy industry was moderate.