COMBINE WILL's Record Revenue and New Markets: The SGX-Listed Fast-Food Toy Supplier You Didn’t Know

Last week, Combine Will's CFO, Simon Suen, participated in a webinar hosted by Phillip Securities. Here is the Q&A content, edited for clarity and brevity,  from the event: 

How much of your exports are to the US?

Simon: I would say from 20% to 25% of our total revenues. We ship to the US not only for our fast-food chain customers but also for the healthcare product customer. But since they are global brands, they ship the products all over the world.

Who will absorb the impact of US tariffs on your business?

Simon: Our largest customer, a fast-food chain, will absorb it themselves. Since our products are shipped all around the world, group-wise, only around 20% of our products are shipped to the US.

CFO Simon Suen

"Our customers are our growth driver. We serve the fast-food chains, so whichever program they promote, we produce for them. Some of the programs are very popular, and they are also trying to make new lines not only for kids but also for adults. So, they are making some adult fun toys as well. "I think that is a different type of potential growth that they have, and for them to secure more market share. If they keep increasing the number of restaurants in the world, then we have potential growth for our business because we are currently one of their major vendors in toys."

Since we have already diversified production between our China site and Indonesia site, the overall impact is not really that high. 

Can your US customers source from lower-tariff countries, for example, Mexico?

Simon: I would not say no, but in terms of supply chain resilience and material sourcing, I would say China and Southeast Asia have advantages because most of the raw materials or supporting materials are sourced from China.

In countries like Mexico, labor cost is one of the concerns, and that is our advantage. Also, the knowledge we have on producing or applying green materials puts us at an advantage and is our core competitiveness.

How are you seeing the current market trends for toys? And will your margins improve with more plush toy production?

Simon: Look at Pop Mart and trendy toy brands in China. That's why in our China sites, we focus on the China local market and, of course, the Belt and Road markets.

Many companies are building up their new or own IPs compared to the traditional IPs in the US or Europe—for example, Disney, or Barbies. Chinese companies are building up their own IPs like Nezha or Labubu. 

As for margins, for traditional plastic, the margin is relatively stable. But with green materials, since the raw material cost is higher than traditional plastic, it actually eats up part of our margins. But since we have the plush toy operations that we are strongly ramping up, the margins from plush—and of course from paper—will be better than plastic.

That is a trend of the market, and also, since for example, plush is a more labor-intensive business—they need workers to use their hands for stitching, which is one of the most important processes.

That is the advantage of building the plush operations in Indonesia rather than in China. And for paper, it is more machine-driven, so it's less labor-intensive. 

Are there any plans to expand into other regions or key markets?

Simon: The next target for Combine Will is the Belt and Road market and the China local market. Because for Europe, I would say they are very well-developed already, and also they have many of their own brand toys.

In China or in the Belt and Road countries or in Southeast Asia, because the population base is there, it will be easier for us to cooperate with some brand companies who are looking for making their own products for promotions. 

What are your growth strategies for the future, and for one of these growth strategies, what are the current updates?

Simon: We are expanding our facility sites in Indonesia. That's not only because we want aggressive growth, but also many customers—even new customers—keep asking us: Do we have the capacity in Indonesia?

That is the fact—the "China plus one" is a common term in the market now. I think the Indonesia site will be our growth driver, and that's why we keep expanding.

Also, that is why we built our latest facilities for die-casting. Before, we only had die-casting facilities in China, but now we expand it to Indonesia as well because we want to capture more market share or capture the new customers' needs. 

On the other side, we build the headquarters in Dongguan—that's why we purchased the land. It is because we have a lot of skill sets in China that we don't have in Indonesia.

Indonesia is the production site, but for R&D, product development, design—all of the experts, or even the supply chain, the vendors, or the new material providers—they are from China. 

Did the company hit full plush toy production capacity in 2024, and what would be the production capacity for plush toys in 2025?

Simon: For the capacity, well, in 2024, since we only started up, we only had one workshop in Indonesia—around 5,500 square meters to operate to start with—so the capacity is only 30 million pieces per year. But now, since we have the phase 2 facilities ready, the capacity can grow to 80 to 100 million pieces per year.

So, it's almost more than double our original capacity.  

What are your planned capex for 2025 and 2026, and how does this compare with 2023 and 2024?

Simon: In 2025, we might put around HK$120 million to the capex because we are expanding. Well, we just built the plush phase 2 facilities in Indonesia, and also we are building the facilities for die-casting as well.

So, that's two major investments that we have in Indonesia. Also, we purchased land in China two months ago. Of course, we might slow down the development or construction in China to put our focus in Indonesia first.

So, I would say in 2025 and 2026, both are around 120 million Hong Kong dollars for the capex.

If earnings continue to improve, will more dividends be paid by the company?

Simon: We review the dividend policy year by year. Since we need more cash for capex, so maybe in the future two to three years, the dividends policy will not be changed. 

If a competitor wants to replicate your scale in China or Indonesia, how much do they need to invest, assuming they have the customer and supplier network? I'm trying to see whether the PPE is understated on the company's balance sheet, as the company is trading at 0.29 times price-to-book value only.

Simon: I would say the barrier of entry to our industry or to build up to our scale is quite high.

Our customers are very unique, and you need to build up a lot—not only the funds, not only the machine base. For example, we are a listed company, we have been very transparent, and also, for example, the ESG initiatives—those are the things that as a listed company we have to do, and also required by our major customers.