Company Analysis Report

Cai Jiajing

蔡佳静
 Playmates Toys Limited Analysis Report

Business and Finance-Company Analysis Report

Table of Content

Exclusive Summary .............................................................................................. 2

Economy Analysis ................................................................................................ 3

Industry Analysis................................................................................................... 5

Company Analysis ................................................................................................ 7

Overview.................................................................................................................. 7

Business Analysis ................................................................................................. 8

SWOT Analysis .................................................................................................... 11

Financial Analysis ............................................................................................... 12

Conclusion ............................................................................................................ 18

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 Playmates Toys Limited Analysis Report

Exclusive Summary

Highly Competitive and Speed-up Industry

Relying too much on the traditional products, Playmates Toys Limited, once the leader of
toy market, is facing an operation dilemma. The company has to deal with emerging
problems derived from the impulse of e-commercial toy industry. On the other hand it can
also seize valuable opportunities offered by customer preference changes and booming
demands from developing countries.

If the company fails to find a new revenue gain either by the way create new brand toys
or develop new market over the world, it will follow Toys-R-Us, the company’s major
customer, to become the second victim of the tough industry environment.

Disappointing Operation Result & Relatively low leverage

The company reported a 36% decrease of revenue in 2016 driven mainly by strong
competition in the boys action categories. After cutting off diverse expenses, it has a
satisfactory profitability result. Given the market preference changes, it is hard for the
company to gain huge profit from the traditional strategies.

At the same time, with adequate liquidity, the company has lower the leverage which
provides the foundation for its opportunity to acquire new exclusive licenses from the
leading global entertainment partners.

Investment suggestions

Both dividend per share and share prices have decreased obviously over the last two
years. With uncertainty of the coming new relating cartoon movie, we recommend to sell
the stock.

Given the strong parent company, we advise investors keep an eye on the future
business activity and stock performance.

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 Playmates Toys Limited Analysis Report

Economy Analysis

World

The global upswing in economic activity is strengthening. Global growth, which in 2016
was the weakest since the global financial crisis at 3.2 %, is projected to rise to 3.6% in
2017 and to 3.7% in 2018, respectively 0.1 percentage point higher in both years than in
the April and July forecasted, according to World Economic Outlook announced by IMF in
October,

However, the recovery is not complete: although the baseline outlook is better, growth
remains weak in many countries. Inflation is below target in most advanced economies,
indicating that slack has yet to be eliminated, even as domestic demand has gathered pace
and unemployment rates have fallen compared with the previous year. Prospects for
growth in GDP per capita are held back by weak productivity growth and rising old-age
dependency ratios.

While short-term risks are broadly balanced, medium-term risks are still skewed to the
downside.

The United States

As the world’s largest economy and the biggest market of Playmates Toy Limited (PTL),
the United States showed outstanding resilience in the third quarter of 2017 despite
hurricane-induced disruptions, with GDP growth coming in at 3.0%, well above market
expectations, according to the US Department of Commerce.

The jobs market continued to strengthen, with unemployment rate falling from 4.7% in
December of 2016 to 4.1% in Oct of 2017, the lowest since December 2000, announced by
the Labor Department.

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 Playmates Toys Limited Analysis Report

However, wage growth remains subdued, below the 3.0-percent threshold and with most
industries seeing a slowdown the rate of annual earnings growth. The CPI rose 0.1% in
October on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported. Over
the last 12 months, the all items index rose 2%.

Federal Reserve’s Monetary Policy Report in July stated that The Federal Open Market
Committee (FOMC) decided to raise the target range for the federal funds rate in March
and in June, bringing it to the current range of 1% to 1.25%.

With gradually reduction of the amount of monetary policy accommodation, economic

activity will expand at a moderate pace and labor market conditions will strengthen
somewhat further.

Europe
As the second largest market of PTL, the euro area economy is on track to grow at its
fastest pace in a decade this year, with real GDP growth forecast at 2.2%, which is 0.5
percentage point higher than expected in spring, according to Autumn 2017 Economic

2012 2013 2014 2015 2016

GDP per Capita (EUR) 29,756 29,979 30,434 31,318 32,003
Real GDP(annual variation in %) -0.9 -0.2 1.2 1.9 1.7
Unemployment Rate(%) 11.4 12.0 11.6 10.9 10.0
Inflation(PPI, annual variation in %) 2.8 -0.2 -1.5 -2.7 -2.3
Forecast from EU.

Although the cyclical recovery has now been underway for 18 uninterrupted quarters, it
remains incomplete, with significant slack in the labor market and untypically low wage
growth. GDP growth and inflation are therefore still dependent on policy support.

The European Central Bank has kept its monetary policy very accommodative while
some other central banks around the world have started raising interest rates. A number of
euro area Member States are expected to adopt expansionary fiscal policies in 2018 but
the overall fiscal stance of the euro area is expected to stay.

China

China continues to defy signs of an abrupt

slowdown on the back of resilient household
consumption. GDP expanded 6.8% annually in
Q3, comfortably in line to achieve this year’s 6.5%
growth target. While economic growth is slowing
overall and manufacturing companies are cutting
jobs, demand for labour is propped up by the

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 Playmates Toys Limited Analysis Report

growing services sector.

The chart shows the official Purchasing Managers' Index (PMI) is signalling mild
contraction in the crucial manufacturing sphere. A PMI value of more than 50 indicates
expansion. Lower than 50 indicates expected contraction

Industry Analysis

Market size

Toys are the tools that help foster the mental, physical, e motional and social
development of boys and girls. Although estimates vary, the world market for toys is very
large. Total revenue of global toy market was 87.4 billion U.S. dollars in 2015, projected to
reach 166.2 billion US dollars in 2024, driven by innovation, technology developments and
launch of smart toys, according to Global Industry Analysts.

The toy industry is continuing on the strong and steady path of success, as global toy
industry sales are up 3% from January through June 2017 tracked by NPD, estimated to
grow approximately 4% for the full year.

Cornering nearly 30% of the global market, the US is the largest individual market,
contributing 74.9% of revenue. Europe as a whole contributed 14.5%. The US is also

among the top countries in the world in regards to toy spending per child.

The above chart was released by NPD, showing that global toy sales grew by 3% from

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 Playmates Toys Limited Analysis Report

January to June 2017, led by double-digit increases in Mexico and Russia, with toy sales in
the US experiencing a modest increase of 3% and been expected to grow approximately
4.5% for this year.

As its largest market over the world, the United States witnessed toy industry 16% larger
in 2016 than 2013, which calculates to a compounded annual growth rate of 5%. U.S. toy
industry grew 5% in 2016, exceeding $20 Billion.

Market segmentation

With increasing competition from video games, the traditional toy industry has responded
by incorporating more technology into toys. Through technology, toys are being made more
educational and engaging.

The Action Figure category experienced a dramatic year-over-year decline, due to lack of
major action adventure movies compared to the previous year. Games & Puzzles grew the
fastest at 24%, had the largest absolute dollar growth at $143 million, and represented over
40% of total toy industry gains. Within Games, adult games grew the fastest at 267%.

Industry Characteristic
Concentrated competition

The industry is very competitive and has become highly concentrated as well.

According to NPD, two toys companies (Mattel and Hasbro) and three retailers (Walmart,
Toys-R-Us and Target) dominate the U.S. market. The largest toy retailers share about 70%
of the U.S. toy market, with small specialty shops and online catalogs claiming the
remaining 30%.In other countries, the toys industry has followed the U.S. trend of
becoming corporate-dominated; the little cottage-industry nature of toys that remains is
rapidly vanishing.

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 Playmates Toys Limited Analysis Report

Not only is the industry everywhere becoming more corporate-dominated, but Mattel and
Hasbro feature prominently as these U.S. industry giants have expanded internationally.
Hasbro and Mattel are reportedly in discussions regarding a merger.

Industry cycle

With children opting for more innovative toys, the market is influenced by changing
consumer tastes and interests.

Toy industry is highly characterized by fluctuations, which are seasonal and trend driven
in nature, with about one-third of total annual sales typically occurring in the first half year.

Licensing

The global toys market is characterized by licensing agreements between the companies,
offering innovated and eco-friendly toys to the customers

It is a key trend affecting toy sales globally. Seven out of ten licensed traditional toy
manufacturers are in APAC. The US is the biggest licensed toys market globally. Due to the
influence of Hollywood blockbuster movies such as Transformers: Dark of the Moon, Cars 2,
and Thor, the demand for license merchandise has increased significantly since 2012.

The sale of counterfeits is one of the major roadblocks faced by licensors and has an
adverse effect on the growth of the market. Counterfeit toys can cause health issues among
children. In 2011, some of the top countries in the EU that seized counterfeit toys were
Romania with 0.32 million counterfeit toys.

Company Analysis

Overview

With a 50-year history, PTL is today among the most well-respected and innovative
marketing and distribution companies in the global toy industry. From its offices in Hong

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 Playmates Toys Limited Analysis Report

Kong and California, it designs, develops, markets and distributes its products in over 60
countries worldwide.

The Company was founded as Playmates Industrial in 1966 in Hong Kong, as primarily a
doll manufacturing subcontractor for US and European toy marketers. By the mid-1970s,
Playmates had earned a reputation as a leading supplier of top quality dolls.

In 1990, PTL was held by Playmates International Holdings Limited (PIHL), which is now
known as Y.T. Realty Group Limited (HKEX: 75). As the toy business was spun-off from
PIHL via Playmates Holding Limited (PHL, HKEX: 635) in December 1993, PIHL is an
independent third party.

With business strategy changed from manufacturing-focused to marketing-focused, PTL

underwent the reorganization and following the spin-off in May 2007. In February 2008.
PTL was listed on Hong Kong Stock Exchange by introduction.

Business Analysis

Branding and product

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 Playmates Toys Limited Analysis Report

The left chart above summarizes the product development work flow of PTL.

All toy products can be categorised generally into licensed brands and proprietary brands.
Licensed brands are principally based on entertainment properties held by third parties,
which PTL needs to acquire the rights to use; while proprietary brands are brands we
develop internally. PTL focus much on licensed brands.

The top 4 crucial licensed brand of PTL is the Teenage Mutant Ninja Turtles (TMNT)
range of toys, Voltron, Ben 10,Mysticons.

As for TMNT, the most crucial brand of PTL, 2016 TMNT Movie Sequel help TMNT toys
perform well at retail in the US. According to NPD and trade reports, it continued to rank
among the top selling boy’s action toy brands in the US and key international markets
during 2016.

However, PTL faced competitive pressures to further intensify this year, with a full
schedule of kid-friendly movies to be released throughout the year. Sales of TMNT toys will
likely decrease 2017.

In 2018, Nickelodeon, the American basic cable and satellite television network will
reimagine the TMNT franchise in an all-new animated series, launching Fall 2018. PTL will
create a whole new line of TMNT products in response.

As for the Voltron, as the show released by Netflix with currently over 75 million members
in over 190 countries has garnered positive reviews in August 2017. PTL launched the line
of Voltron toys this Spring, and are actively developing product extensions for Fall 2017.

As the global master toy partner for Cartoon Network’s new Ben 10, PTL began initial
shipments of Ben10 toy line during the first half of 2017.The company will continue to
expand distribution in the second half of the year.

The Mysticons TV show targeting the girls audience will debut in Fall 2017, and PTL are
gearing up for the launch of our Mysticons toy line in early 2018.

Market segmentation

Geographical information
120.00%
100.00%
100.00%

80.00%
74.95%

60.00%

40.00%

20.00%
14.46%
4.41% 5.49% 0.66%
0.00%
US Europe other Asia Pacific others total
American other than
Countries HK
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2013 2014 2015 2016
 Playmates Toys Limited Analysis Report

The histograms show PTL’s global market share in terms of revenue from 2013 to 2016.
Among 4 markets over the world, PTL’s revenue relied deeply on the American market. The
United States remained its largest market for many years, accounting for more than 60% of
the world in 2016. Europe is its second largest market, constituting 16% shares in 2016.
The market share has not been changed over the past 4 years.

Revenue and Major customers( in HK$ thousand )

2,500,000
2157945
2,000,000
1657463
1,500,000 1551286
227500
265300 169522
1,000,000 215800 992933
216100 415400 225976
295700 280128 104985
500,000 119286
153844
446000 634300 513229 362691
0
2013 2014 2015 2016

A B C D total

Major Customers 2016

25.39%
36.53%

10.57%

12.01% 15.49%

A B C D Others

The two chart above show the global revenue from 2013 to 2016. PTL’s customer base
is diversified and includes 4 major customers with each of whom transactions have
exceeded 10% of its total revenue.

The Revenue from sales to these customers amounted to approximately in 2016

HK$362.7 million, accounting for the 74.61% of the total revenue. The largest customer
constitutes 37% of the whole market in 2016, increased from 33% last year. This reflects
industry concentration increased

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 Playmates Toys Limited Analysis Report

Manufactory and distribution

Supply chain is a critical part of the company’s operations. All productions of our toy
products are outsourced to independent OEM vendors with manufacturing facilities in
China. We have a select group of approximate 14 vendors that produce our toy products
during the year.

The key distribution channels in the U.S. include national mass merchandise retailers
and national toy specialty chain stores, membership warehouse clubs, as well as
supermarket, pharmacy and dollar store chains. PTL serves U.S. customers through its
in-house sales team, which is complemented by a network of independent sales
representatives who maintain close working relationships with customers.

Outside the U.S., the company works with a network of independent toy distributors
that manage the marketing and distribution of products in over 50 countries around the
world. Two of PTL’s top five customers are its distributors for European countries including
France, Germany, Italy, Spain and the United Kingdom.

SWOT Analysis

Sthength

Since PTL holds as much as HK$ 1 billion cash, it can acquire exclusive license from the
third party, which will help the company find another revenue source.

Due to the partnership with plenty entertainment industry like Nickelodeon, the American
basic cable and satellite television network, and Netflix, the product can easily become
popular.

Weakness

New Jersey-based toy retailer Toys "R" Us, one of PTL’s 4 major customers, seeked
Chapter 11 bankruptcy protection in September 2017. As Toys "R" Us should pay HK$ 31
million to PTL, the bankruptcy affected PTL a lot.

Comparing with total 36 active licenses PTL owned in 2008, it only has 5 licenses in 2017,
which absolutely impair the competitive power.

The United States represents approximately 76% of its global toy market, and only has
about 2% of the world’s children. PTL relies too much on the US market, which will increase
the operation risk. It urges PTL to develop new market around the world.

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 Playmates Toys Limited Analysis Report

The company intends to align strategically with partners in the entertainment industry to
extend their brand equity into toy and electronic products worldwide. But the company has
not created an online toy yet.

.Opportunity

The popularity of TV shows for children, cartoons, and movies have increased the
manufacturing of toys and games based on the characters in these shoes and movies. For
instance, the success of Hannah Montana and Spiderman increased the sales of the
Hannah Montana and Spiderman toys and games product lines. Licensed toys always
carry a higher price tag than their non-licensed counter parts. PTL should pay close
attention to the aforementioned.

As disposable incomes level rise while the US economy recovers from the recession,
sales of higher-end toys will increase alongside a growing market for traditional and
learning-oriented toys.

In recent years, the lifestyle in both developed countries and emerging countries such as
Russia, China, and India has changed dramatically. The personal disposable income of
consumers in China increased from $4,164.24 in 2014 to $4,503.65 in 2015, leading to a
rise in the demand for toys and games from organized multi-brand retail stores, which, in
turn, can help PTL to earn higher revenue if the company can have new stratege.

Threat

The Action Figure category have suffered a lot these years, while video games have
developed to attract younger and younger users and children have been deserting
traditional toys at a younger and younger age. Another reason for this so-called kids
growing older younger syndrome is the fact that kids today have more choices when
deciding how to spend their free time, more things to spend their pocket money on than
toys.

E-commerce sales will account for a larger share of the industry as shipping becomes
more efficient. Industry operators have benefited from increased e-commerce activity and
rising consumer spending, as games and puzzle sales grew at a faster rate than outdoor
and sports toys.

Consolidation has risen as a result of increasing competition and e-commerce activity.

Operators have increasingly merged to take advantage of economies of scale.

Financial Analysis

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 Playmates Toys Limited Analysis Report

Interpretation of Balance Sheet

Common-Size Balance Sheets
2016 2015 2014 2013 2012
Deferred tax assets 2% 2% 3% 4% 0%
Non-current assets 3% 3% 4% 5% 3%
Inventories 1% 2% 3% 4% 6%
Trade receivables 13% 22% 37% 39% 47%
Deposits paid, other receivables
3% 3% 1% 2% 2%
and prepayments
Cash and bank balances 76% 63% 55% 50% 42%
Current assets 97% 97% 96% 95% 97%
Total assets 100% 100% 100% 100% 100%
Trade payables 1% 4% 5% 6% 12%
Deposits received, other payables
10% 11% 13% 19% 34%
and accrued charges
Provisions 3% 4% 3% 3% 4%
Current liabilities 15% 18% 28% 28% 50%
Total liabilities 15% 18% 28% 28% 50%
Share capital 1% 1% 1% 1% 3%
Reserves 84% 81% 63% 65% 47%
Total equity 85% 82% 72% 72% 50%
Total liabilities and equity 100% 100% 100% 100% 100%

PTL was abundant in current assets, especially cash, as the cash and bank balances
took up 76% of its total assets. It increased by 15% from HK$ 877 million in 2015 to
HK$ 1billion in 2016, indicating the company had no financial risk.

The company has succeeded in generally lowering the leverage rate during the past 5
years. With its leverage decreasing from 50% to 15%, PTL has changed from a high
leverage company to a low leverage company.

As for the equity, it has increased from HK$191 million in2012 to HK$1.1trillion with a
quite high rate of reserve, reflecting its huge growth momentum.

The company’s trade receivable has sharply decreased by 44% from HK$311million in
2015 to HK$175million in 2016, given the revenue in 2016, reflecting the company’s
operation suffer a lot. Trade payable has decreased by 67% from HK$49million to
HK$16milion.

During the past 5years, the provisions has increased creased from HK$13.3million in
2012 to HK$ 37.7 in 2016, despite the trade receivable has decreased, maintaining 4% of
the total assets. The performance in the collect debt has improved

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 Playmates Toys Limited Analysis Report

Balance Sheet -YTY Comparison

2016 to 2015 to 2014 to 2013 to
In HKD Thousand 2016 2015 2014 2013 2012
2015 % 2014 % 2013 % 2012 %
Property, plant and equipment 5153 6241 -17% 4339 44% 1172 270% 1274 -8%
Interest in an associated company 6053 6053 0% 5114 18% 10795 -53% 11701 -8%
Deferred tax assets 27837 34105 -18% 48502 -30% 44071 10% 136 32305%
Non-current assets 39043 46399 -16% 57955 -20% 56038 3% 13111 327%
Inventories 15236 28242 -46% 44165 -36% 36959 19% 21783 70%
Trade receivables 174841 311020 -44% 529727 -41% 411831 29% 177304 132%
Deposits paid, other receivables
40962 37711 9% 19567 93% 20985 -7% 6601 218%
and prepayments
Taxation recoverable 22487 53449 -58% 173 -100%
Financial assets at fair value
23195 31078 -25%
through profit or loss
Cash and bank balances 1006516 877487 15% 785784 12% 519563 51% 161452 222%
Current assets 1283237 1338987 -4% 1379243 -3% 989338 39% 367313 169%
Total assets 1322280 1385386 -5% 1437198 -4% 1045376 37% 380424 175%
Trade payables 16318 48737 -67% 77734 -37% 58963 32% 46367 27%
Deposits received, other payables
131634 148263 -11% 193223 -23% 197142 -2% 128979 53%
and accrued charges
Provisions 37749 48930 -23% 45819 7% 35329 30% 13330 165%
Taxation payable 4374 84061 -100% 2199 3723% 390 464%
Current liabilities 195906 251761 -22% 400837 -37% 293633 37% 189066 55%
Total liabilities 195906 251761 -22% 400837 37% 293633 37% 189066 55%
Share capital 12144 12100 0% 12062 0% 11798 2% 11533 2%
Reserves 1114230 1121525 -1% 903675 24% 680673 33% 179825 279%
Total equity 1126374 1133625 -1% 1036361 9% 751743 38% 191358 293%
Total liabilities and equity 1322280 1385386 -5% 1437198 -4% 1045376 37% 380424 175%

Interpretation of Income Statement

Playmates Toys group worldwide turnover for the year ended 31 December 2016 was
HK$993 million (2015: HK$1,551 million), a decrease of 36% compared to the prior year.
The decrease in turnover was driven mainly by very strong competition in the boys action
categories.

The major part of the cost is marketing expenses. As the company faced a tough
situation, it tried to cut off administration fee from HK$159miliion to HK$132miliion to
decrease cost,

The cost of the inventory finally has dropped by 35% from HK$ 541 million in2015 to
HK$354 million in 2016. Another important cost is the royalties paid to acquire exclusive
licenses. The cost of royalties paid decreased by 35% from$ HK$208 million to
HK$136milion in 2016.

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 Playmates Toys Limited Analysis Report

Facing severe fierce competitive toy industry as revenue has dropped by almost 54%
from HK$ 2 billion in 2014 to HK$ 993 million in 2016, PTL chose to cut off cost instead of
acquiring new exclusive licenses.

Common-Size Income Statements

2016 2015 2014 2013 2012

Revenue 100% 100% 100% 100% 100%

COGS 40% 38% 38% 37% 40%
Gross Profit 60% 62% 62% 63% 60%
Marketing expenses 22% 21% 18% 17% 20%
Selling and distribution expenses 7% 6% 6% 5% 5%
Administration expenses 13% 9% 7% 7% 21%
Operating Profit 18% 26% 30% 33% 14%
Other net income/(loss) 1% 0% 0% 0% 0%
Finance costs 1% 0% 0% 0% 1%
Share of profit of an associated company 0% 0% 0% 1%

Income Statements -YTY Comparison

2016 to 2015 to 2014 to 2013 to
In HKD Thousand 2016 2015 2014 2013 2012
2015 % 2014 % 2013 % 2012 %

Revenue 992933 1551464 -36% 2160206 -28% 1658527 30% 371615 346%
COGS -397213 -595462 -33% -823862 -28% -616793 34% -147571 318%
Gross Profit 595720 956002 -38% 1336344 -28% 1041734 28% 224044 365%
Marketing expenses -220057 -324374 -32% -398729 -19% -288976 38% -75902 281%
Selling and distribution expenses -68814 -91095 -24% -130709 -30% -82299 59% -19420 324%
Administration expenses -131593 -144479 -9% -158668 -9% -123917 28% -76505 62%
Operating Profit 175256 396054 -56% 648238 -39% 546542 19% 52217 947%
Other net income/(loss) 6065 -241 -2617% 2742 -109% 1555 76% 1568 -1%
Finance costs -5199 -7157 -27% -9387 -24% -7534 25% -4407 71%
Share of profit of an associated
company 939 -5681 -117% -906 527% -5497 -84%

Interpretation of Cash Flow Statement

PTL witnessed the huge amount of cash outflow since 2013. Decreasing from HK$491
million in 2014 to HKD 233 million in 2016, it almost dropped by more than 50%.In addition,
due to the bad operation performance in 2016, the cash generated from operating has
dropped by 53%.

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 Playmates Toys Limited Analysis Report

In HKD Thousand 2016 2016 to 2015 % 2015

Payable Turnover 12.21 30% 9.42
days in payable 29.89 -23% 38.76

However, the cash has increased by 15%.The major inflow of the cash is the deduction of
the expenses in financing activities. As for the investing activity, cash used in this part has
decreased by amazingly 147% from HK$182million to

Cash Flow Statements -YTY Comparison

2016 to 2015 to 2014 to 2013 to
In HKD Thousand 2016 2015 2014 2013 2012
2015 % 2014 % 2013 % 2012 %
Cash and cash equivalents
1006516 877487 15% 785784 12% 519563 51% 161452 222%
at 31 December
△operating activity 232652 305093 -24% 491067 -38% 341565 44% -17289 -2076%
Cash generated from Operation 256478 540947 -53% 546776 -1% 389801 40% -15949 -2544%
△investing activity 14827 -31535 -147% -1373 2197% 934 -247% 1387 -33%
△financing activity -118450 -181855 -35% -223473 -19% 15612 -1531% -30592 -151%
Dividends paid -121272 -181457 -33% -240262 -24% -177815 35%

As for the collecting of debts, the performance in the collect debt has improved, with days
in payable decreasing from 38.76 to 29.89 and payable turnover increasing 30%.

Interpretation of ratios

According to the ratio analysis chart, diverse profitability ratio shows different signals,
with gross profit margin showing stable and net profit margin showing a 20percentage point
decrease. The main reason is that the company attempted to cut its expensed on the
COGS in the past few years. But marketing expenses, selling and distribution expenses are
hard to cut, due to the fierce competitive toy industry. Therefore, it was stable in 2016 is not
objective.

The company has a quite good performance with its cash flow as its cash conversion
cycle was within 100 days, though in an upward trend. The company’s ability to cover
current liability is favorable as major liquidity ratios over the last 5years see growth.

One of the most significant change can be found in leverage ratios. The company is
financed by a rapidly decreasing rate of liabilities, as equity multiplier, net debt ratio and
debt- to-equity dropped so fast. Nevertheless, the interest coverage in the company has
slumped, due to its bad sales performance.

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 Playmates Toys Limited Analysis Report

Ratio Analysis
2016 2015 2014 2013
Gross Profit margin 60% 62% 62% 63%
Profitablity Net Profit margin 11% 18% 23% 32%
ratios
ROA 0.0814 0.1957 0.3953 0.7482
ROE 0.0975 0.2546 0.5488 1.1311
Operating Days in Inventory (days) 20.0 22.2 18.0 17.4
efficiency Days in Receivable (days) 92.8 102.1 81.3 66.2
ratios
Days in Payable (days) 29.9 38.8 30.3 31.2
Cash conversion Circle (days) 83 86 69 52
Liquidity Current ratio 6.55 5.32 3.44 3.37
ratios
Quick ratio 6.03 4.72 3.28 3.17
Cash ratio 5.14 3.49 1.96 1.77
Equity Multiple 1.17 1.22 1.39 1.39
leverage Debt to equity ratio 0.1739 0.2221 0.3868 0.3906
Ratios
Net Debt Ratio 0.2457 0.4071 0.5726 0.6249
Interest coverage ratio 33.71 55.34 69.06 72.54
dividend payout / 68% 34% 47%
Valuation
Ratios dividend yield / -33% -25% 32%
No. of Shares 1214396000 1210000000 1206249500 1179751500

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 Playmates Toys Limited Analysis Report

Conclusion
Due to the highly competitive industry and customers preference changed, Playmates
Toys Limited has suffered a lot in the past 2 years, as the revenue sharply dropped. Facing
the tough sales environment, the company has lowered the leverage, cut the administration
expenses to survive.

In 2017, it is expect Teenage Mutant Ninja Turtles (“TMNT”) business to contract further.
The scheduled theatrical releases of several competitive action adventure franchises will
likely cause further fragmentation in the product categories. On the other hand, new brands,
Voltron and Ben 10, will provide positive contributions to 2017 results.

As the company has a lot of cash, the company has little bankrupt risk. However, It is
difficult to change the situation as the company rely too much on traditional products, major
American market and the major customer, which were in a downward trend. It needs to
seek for further development.

If the company can acquire exclusive licenses or develop new market, it is likely to see
the stock price rising. With the uncertainties, we recommend SELL the shares.

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