1、Toy CompaniesToys Rising from the Ashes: Initiating on Mattel at Overweight and Hasbro at NeutralWe are initiating coverage of the toy industry with an OW on MAT and N on HAS. After an arguably tough 2019 holiday season, we believe the US toy industry can return to better growth in 2020 after consec

2、utive years of declines primarily driven by the Toys R Us bankruptcy. Longer term, we expect LTMSD% global category growth (N. America LSD, intl MTHSD) based on (1) the increasing proliferation of entertainment content leveraging toy brands, (2) parental focus on childhood development and play-time,

3、 and (3) a rising middle class and favorable demographics in emerging markets. We also believe the industry is relatively resilient in a moderating US consumer environment given the categorys defensive nature.With a Dec 20 PT of $17 (19% upside), we rate MAT OW as a long-term value play on a turnaro

4、und story for three reasons: (1) Realigned management. We believe key leadership changes (Fig 15) under CEO Ynon Kreiz (who realigned MATs focus on stabilizing sales and restoring profitability) set the foundation for improving execution. (2) Topline turning. We expect MAT to grow sales LSD% in 2020

5、 after consecutive declines from 2014 to 2018 supported by momentum in Barbie and Hot Wheels, while Fisher-Price stabilizes. We expect growth to accelerate beyond 2020 with eight movies and two Netflix shows utilizing MAT IP in the pipeline. (3) Visible margin drivers. With $900MM of run-rate saving

6、s by 2021 from its cost programs (and commitment to further efficiency), results are supported by visible margin enhancements. Thus, we see a multi-year topline, margin, and FCF recovery story. Our PT is based on 11x EV/EBITDA (2x below the market) and at 3.1% FCF yield in line with historical avera

7、ge. We believe these metrics are most relevant in the medium term given MATs early-stage turnaround.While we admire HASs long-term potential, we rate it Neutral with a Dec 20 PT of $113 (8% upside) on valuation and near-term risks. Longer term, HAS results are bolstered by its strong brand portfolio

8、 and growing digital games, while the ETO acquisition should unlock synergies. However, ahead of the 4Q print, we worry about a shortened 2019 holiday, expectations on Frozen 2 and Star Wars sell- through, and remnant supply chain pressures. Our 4Q19 revenue and EPS estimates are thus 1% and 3% belo

9、w consensus, respectively. We also see a potential content cliff in 2020 following the success of Bumble Bee (HAS IP) and Disneys blockbusters that benefitted 2019. Against this backdrop, valuation appears full at 20 x PE (14x EV/EBTIDA) on our 2021E, close to historical average but 1x above the ble

10、nded multiple for HAS with ETO. Note our 2020 estimate reflects$0.80 benefit from acquisition accounting, which is currently not reflected in consensus but we expect in HASs 2020 guidance, and it should reverse in 2021.North America Equity Research27 January 2020MAT, MAT USOverweightPrice: $14.28 (2

11、4-Jan)Price Target: $17.00 (Dec-20)HAS, HAS USNeutralPrice: $104.68 (24-Jan)Price Target: $113.00 (Dec-20)Retailing/Broadlines & Hardlines Tami Zakaria, CFA AC(1-212) 622-9888 HYPERLINK mailto:tami.zakaria tami.zakaria Bloomberg JPMA ZAKARIA Christopher Horvers, CFA (1-212) 622-1316 HYPERLINK mailto

12、:christopher.horvers christopher.horversJ.P. Morgan Securities LLCEquity Ratings and Price TargetsCompanyTickerMkt Cap ($ mn)Price ($) Rati Curng PrevCur Price TargetEndPrev DateEnd DateMattelMAT US4,976.5814.28OW17.00Dec-20HasbroHAS US13,481.15104.68N113.00Dec-20Source: Company data, Bloomberg, J.P

13、. Morgan estimates. n/c = no change. All prices as of 24 Jan 20.See page 86 for analyst certification and important disclosures.J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of intere

14、st that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. HYPERLINK / Table of Contents HYPERLINK l _bookmark0 Toy Industry Investment Thesis 3 HYPERLINK l _bookmark1 Hasbro and Mattel Investment Overview i

15、n Pictures 4 HYPERLINK l _bookmark2 Mattel Investment Thesis 9 HYPERLINK l _bookmark3 Risks to Rating and Price Target 11 HYPERLINK l _bookmark4 MAT: Company Description 12 HYPERLINK l _bookmark5 A More Detailed Look at Our MAT Investment Thesis 13 HYPERLINK l _bookmark6 #1 Leadership Shake-up under

16、 New CEO 13 HYPERLINK l _bookmark7 #2 Regain Growth: Topline Stabilization in 2019; Expect Growth in 2020 and HYPERLINK l _bookmark7 Beyond 15 HYPERLINK l _bookmark8 #3 Restore Profitability: Multi-Year Cost Reduction Efforts to Drive Operating HYPERLINK l _bookmark8 Margin Growth 20 HYPERLINK l _bo

17、okmark9 #4 Capture Value from IP through Films/Entertainment Content 22 HYPERLINK l _bookmark10 MAT Financial Outlook 24 HYPERLINK l _bookmark11 MAT Valuation 28 HYPERLINK l _bookmark12 MAT Financial Statements 29 HYPERLINK l _bookmark13 Investment Thesis, Valuation and Risks 32 HYPERLINK l _bookmar

18、k14 Hasbro Investment Thesis 34 HYPERLINK l _bookmark15 Risks to Rating and Price Target 36 HYPERLINK l _bookmark16 HAS: Company Description 37 HYPERLINK l _bookmark17 A More Detailed Look at Our HAS Investment Thesis 38 HYPERLINK l _bookmark18 #1 Premier Portfolio of Owned and Franchise Brands and

19、Related Entertainment HYPERLINK l _bookmark18 Content Release to Drive Topline Growth 39 HYPERLINK l _bookmark19 #2 Wizards of the Coast Revenues Should Double in Five Years; Gaming Has HYPERLINK l _bookmark19 Significantly Higher Op Margin 46 HYPERLINK l _bookmark20 #3 ETO: A Bigger Long-Term Strat

20、egy Play with Untapped Revenue Upside 48 HYPERLINK l _bookmark21 HAS Financial Outlook 51 HYPERLINK l _bookmark22 HAS Valuation 57 HYPERLINK l _bookmark23 HAS Financial Statements 59 HYPERLINK l _bookmark24 Investment Thesis, Valuation and Risks 62 HYPERLINK l _bookmark25 Toy Industry Overview 66 HY

21、PERLINK l _bookmark26 North America Remains Largest Market; Emerging Markets Drive Growth 66 HYPERLINK l _bookmark27 Distribution Post TRU: WMT/TGT Remain Dominant in USA; Internet Retailing HYPERLINK l _bookmark27 Gaining Globally 72 HYPERLINK l _bookmark28 Box Office Content Increasingly Driving G

22、rowth 75 HYPERLINK l _bookmark29 Demographic Trends Remain Positive for Toy Growth 77 HYPERLINK l _bookmark30 HAS & MAT Management Overview 80 HYPERLINK l _bookmark31 HAS & MAT Executive Bios 80 HYPERLINK l _bookmark32 HAS & MAT Executive Compensation Criteria 81 HYPERLINK l _bookmark33 HAS & MAT Ow

23、nership Summary 82Toy Industry Investment ThesisUS toy sales set to grow in 2020 after multi-year disruptions post Toys R Us exit The NPD Group (a market research organization) expects toy sales in USA to return to growth in 2020 following a modest decline in 2019 and -2% growth in 2018 after Toys R

24、 Us (TRU) went out of business that year. Since then, Walmart and Target further solidified their top positions as the retailing partners of both HAS and MAT. Collectively, Walmart and Target made up $2.8B in sales or 31% of combined HAS and MAT sales in 2018 vs. 25% in 2014. Online is an increasing

25、ly dominant channel accounting for 25% of US toys sales in 2018 vs 11% in 2011, a trend we expect to continue.Global outlook healthy; international markets poised for growth over NAPer Euromonitor International, the global toy industry is expected to reach $108B by 2023 with a CAGR of 4.6% from 2018

26、 to 2023E vs. 3.5% CAGR in the preceding 10 years. The fastest CAGR is expected to come from the Middle East and Africa (+10%), followed by LatAm (+10%), Eastern Europe (+6%), Asia Pacific (+5%), and North America (+3%). See the Industry Overview section of the report for details. Thus, HAS and MATs

27、 global scale is critical both in terms of exposure to growth markets and the ability to leverage assets across geographies.Underpinning the positive global secular view are favorable demographic trends, an emerging middle class across highly populous geographies, growth in iconic toy and game brand

28、s, fusion of core owned/licensed properties with entertainment content and technology, and favorable projections for broad-based entertainment consumption.Core brands, not commodities, to drive majority of growthThe proliferation of entertainment content capitalizing owned brands stands to further s

29、olidify the market share of the big players such as MAT, HAS, and LEGO. HAS acquiring ETO and MAT hiring high-profile executives to head its Films and TV divisions are a testament to the push to increasingly monetize IP to lift sales across the merchandise spectrum (i.e., storytelling to sell toys a

30、nd consumer products). Anecdotally, owned brands make up more than half of the industry revenue, and we believe certain toys and games have operated (and will continue to operate) as evergreen properties given their entertainment attributes, brand value and resiliency of cross generational engagemen

31、t (e.g., Barbie to Monopoly, Hot Wheels to Play-DOH, NERF to Fisher-Price). On the other hand, we believe the licensor base is relatively concentrated, making negotiations for marquee licenses highly competitive, though “hits” can offer a significantly outsized return profile.Relative safe haven dur

32、ing cyclical downturnsWith slowdown/recessionary risks on the intermediate-term horizon (as JPMs real GDP growth forecast is 1.7% in 2020 following 2.2% in 2019 and 2.9% in 2018), we believe the industry is relatively recession resilient (parents normally cut back own expenses before tightening the

33、kids budget, albeit there could be trade-downs). In our view, both MAT and HAS are thus defensive, consumer-centric companies (with growth characteristics) that have successfully navigated prior shocks with limited declines to the top and operating profit lines (and certainly compared with other hig

34、hly discretionary leisure companies).Hasbro and Mattel Investment Overview in PicturesFigure 1: MAT and HAS in a SnapshotMattel (MAT)Hasbro (HAS)JPM Rating/Price TargetOverweight, $17 Dec-20 PTNeutral, $113 Dec-20 PTKey BrandsBarbie, Hot Wheels, Fisher-Price, Thomas & Friends, American GirlNerf, Pla

35、y-Doh, Monopoly, Transformers, My Little Pony, Baby Alive, Magic: The Gathering,Dungeons & DragonsRevenue by GeographyFY18: 54% North America, 46% IntlFY18: 52% North America, 48% IntlRevenue by BrandFY18: Barbie 22%, Hot Wheels 16%,Fisher-Price Brands 23%, Other 40%FY18: Franchise Brands 53%, Partn

36、er Brands 22%, Hasbro Gaming 17%,Emerging Brands 8%Source: Company filings; J.P. Morgan Estimates, Bloomberg. Priced as of January 24, 2020Figure 2: Relative Valuation for MAT and HASMAT Valuation Matrix20182019E2020E2021EEPS($0.94)($0.40)$0.14$0.37PE-15.3x-35.6x100.2x38.7xEBITDA ($MM)277428560684EV

37、/EBITDA28.3x18.3x14.0 x11.5x3-Yr Avg23.5x16.0 xPrice Target$17.00PE-18.2x-42.4x119.3x46.1xEV/EBITDA29.3x19.2x14.4x11.4xEV/EBITDA (including right-of-use liab.)29.3x19.9x14.9x11.8xUpside/(Downside) to Target Price 19%20182019E2020E2021EFree Cash Flow ($MM)-180-59184272Free Cash Flow / Share-$0.52-$0.

38、17$0.53$0.78Current Free Cash Flow Yield-3.6%-1.2%3.7%5.5%Discount / Premium to Avg SPX FCF Yield (since 2008)-10.0%-7.6%-2.7%-0.9%Estimated FCF Yield at Target Price 3.1%MATs Avg FCF Yield since 20083.1%HAS Valuation Matrix20182019E2020E2021EEPS$3.85$3.69$6.08$5.79PE27.2x28.4x17.2x18.1x3-Yr Average

39、20.4x18.6xEBITDA ($mm)7978671,3801,356EV/EBITDA17.6x16.1x10.1x10.3x3-Yr Average13.8x12.3xPrice Target$113PE29.3x30.6x18.6x19.5xEV/EBITDA18.7x16.3x14.0 x14.0 xUpside/Downside 8%Total Return Including Dividend11%20182019E2020E2021EFree Cash Flow ($MM)465494648Free Cash Flow / Share$3.61$3.58$4.70Curre

40、nt Free Cash Flow Yield3.4%3.4%4.5%Discount / Premium to Avg SPX FCF Yield (since 2008)-2.9%-3.0%-1.9%Estimated Yield at Price Target 3.2%HASs Avg FCF Yield since 20086.4%Source: Company filings; J.P. Morgan Estimates, Bloomberg. Priced as of January 24, 2020Figure 3: Revenue ($B): MATs Revenues Pea

41、ked in 2013; HASs Revenues to Consolidate Entertainment One (ETO) Beginning in 2020MATCurrent (2019E): $4.5BPeak (2013): $6.5bn$5.7$6.0$5.9$5.9$6.3$6.4$6.5$6.5$6.0$6.2$5.2$5.4$5.7$5.5$5.0$4.9$5.2$4.8$3.8$4.0.1$4.0$4.3.1$4.1$4.3$4.4$4.5$4.6$4.5$4.7$4.6$3.1$3.2$4$4$7$6$5$4$3$2$1$0HASCurrent (2019E): $

42、4.6BPeak (2017): $5.0BJPMorgan Estimate20052006200720082009201020112012201320142015201620172018 2019E 2020E 2021ESource: Company filings; J.P. Morgan estimatesFigure 4: Year-over-Year % Revenue Growth of MAT and HAS (Including ETO from 2020E): Growth Rebased Post Toys R Us Bankruptcy in 2018; MATCur

43、rent (2019E): 0%10-year avg: -2%Peak (2010): 8%HASCurrent (2019E): 3%10-year avg: 2%Peak (2007): 22%13%37%22%6%8%5%-1%1%-2%7%7%JPMorgan Estimate2%1%0%-7%5%4%-5%4%3%2%4%5%0%-5%-4%-8%-8%-11%-12%40%30%20%10%0%-10%-20%2007200820092010201120122013201420152016201720182019E2020E2021ESource: Company filings

44、; J.P. Morgan estimatesFigure 5: Geographically Diverse Revenue Base: North American Sales as % of Total of MAT and HAS70%60%50%40%30%20%10%0%MATHAS54%59%60%47%50%51%55%52%54%52%20142015201620172018Source: Company filings; J.P. Morgan estimatesFigure 6: WMT & TGT Top Customers Following Toys R Us Li

45、quidation in 2018: 29% of HAS Sales and 34% of MAT SalesWMT+TGT as % of total MAT sales40%39%41%41%38%37%37%37%37%38%37%34%200720082009201020112012201320142015201620172018WMT+TGT % of total HAS sales47%47%49%46%41%38%35%33%34%36%37%29%200720082009201020112012201320142015201620172018Source: Company f

46、ilings; J.P. Morgan estimates.MATCurrent (2019E): 44%10-year avg: 48%Peak (2013): 53.4%HASCurrent (2019E): 61.9%10-year avg: 60%Peak (2015): 62.3%JPMorgan Estimate58.3%58.6%58.9%57.9%58.8%57.2%57.2%59.1%59.1%60.3%62.3%62.0%61.0%59.6%61.9%55.3%55.3%45.8%46.2% 46.5%45.4%50.0%50.5%50.2%53.1%53.6%50.1%4

47、9.2%46.8%44.0%45.5%46.9%37.7%40.7%Figure 7: Gross Margin: MAT Inflecting after Trough in 2017; HASs Expected to Rebase Lower in 2020 with ETO Acquisition70.0%60.0%50.0%40.0%30.0%200520062007200820092010201120122013201420152016201720182019E2020E2021ENote: HAS and MATs gross margins are not reported o

48、n a comparable basis, as HAS does not include royalty payments in its COGS, and HAS includes shipping and handling costs in SG&A, whereas MAT includes these in COGSSource: Company filings; J.P. Morgan estimates, and Bloomberg.Figure 8: Operating Margin: MATs Inflecting from Trough in 2017; HAS to Be

49、nefit from ETO Cost Synergies25.0%MATCurrent (2019E): 2.9%10-year avg: 11%Peak (2013): 18%HASCurrent (2019E): 13.1%10-year avg: 15%Peak (2015): 15.6%20.0%15.0%10.0%12.8%12.9%13.5% 12.3% 14.5% 14.7%13.5% 15.4%16.6% 18.0% 18.0%14.9% 15.6% 16.4% 15.6%14.2% 14.6% 14.6%13.1% 13.1%18.5% 16.7%5.0%0.0%10.0%

50、 11.9%12.2%9.2%12.4% 10.9% 10.3%-0.8%2.9%6.1%8.8%-5.0%-10.0%200520062007200820092010201120122013201420152016201720182019E 2020E 2021E-4.2%Source: Company filings; J.P. Morgan estimates, and Bloomberg.Figure 9: Leverage Ratio (Debt/EBITDA): MATs Should Turn Lower with EBITDA Growth; HAS Expects Gradu

51、al Deleverage Post ETO AcquisitionMATCurrent (2019E): 7.2x11-year avg: 4.4xPeak (2017): 18.95xHASCurrent (2019E): 5x11-year avg: 0.5xPeak (2011): 2.3x18.9x10.3x7.2x5.0 x5.5x3.5x4.5x1.3x1.1x0.8x1.5x1.1x1.9x1.3x2.2x2.3x1.1x1.2x2.0 x1.8x2.4x1.9x2.1x2.7x1.7x1.9x2.2x3.4x20.0 x17.0 x14.0 x11.0 x8.0 x5.0 x

52、2.0 x-1.0 x200820092010201120122013201420152016201720182019E2020E2021ESource: Company filings; J.P. Morgan estimates, and Bloomberg.Figure 10: FCF Yield: Since 2009, MAT Averaged 3% While HAS at 5%13.8%9.1%JPMorgan Estimate6.7%8.8%3.3%4.6%4.0%4.7%5.1%3.6%5.2%4.6%5.6%6.1%4.8%4.3%3.6%2.9%3.1%3.1%3.2%4

53、.2%4.6%-3.5%-1.4%-4.9%20092010201120122013201420152016201720182019E2020E2021E15.0%10.0%5.0%0.0%-5.0%-10.0%MATHASSource: Company filings; J.P. Morgan estimates, and Bloomberg. Note: 2020 and 2021 FCF based on JPM Price Target for Dec 20Figure 11: Historical Look at MAT EV/EBITDA Multiple* (1-year For

54、ward Rolling Basis): MAT Avg 11x at 2x Premium to SPX Since 2009MAT 10-year avg fwdMAT 10-year avg. EV/EBITDA EV/EBITDA: 11.2xpremium: +2.0 xJan-09Jan-10Jan-11Jan-12Jan-13Jan-14Jan-15Jan-16Jan-17Jan-18Jan-196.0 x17.0 xForward P/E MultiplePremium / (Discount) vs. SPX12.0 x7.0 x2.0 x-3.0 x0.0 xMAT pre

55、mium/discount to SPXMAT 1-Y Fwd EV/ EBITDASPX 1-Y Fwd EV/EBITDASource: Company reports and J.P. Morgan estimates, and Blomberg. *Values excluding negatives and greater than.Figure 12: Historical Look at HAS EV/EBITDA Multiple (1-year Forward Rolling Basis): HAS Avg 10.3x at 0.7x Premium to SPX Since

56、 2009HAS 10-year avg fwd EV/EBITDA: 10.3xHAS 10-year premium: +0.7x18.0 xForward EV/EBITDA16.0 x14.0 x12.0 x10.0 x8.0 x6.0 x4.0 x2.0 x0.0 xJan-09Jan-10Jan-11Jan-12Jan-13Jan-14Jan-15Jan-16Jan-17Jan-18Jan-19HAS premium/discount to SPX6.0 xPremium / (Discount) vs. SPX5.0 x4.0 x3.0 x2.0 x1.0 x0.0 x-1.0

57、x-2.0 xSource: Company reports and J.P. Morgan estimates and Bloomberg.Figure 13: Historical Look at HAS P/E Multiple (1-year Forward Rolling Basis): HAS Avg 17.2x at 3.1x Premium to SPX Since 200940.0 x35.0 x18.0 x30.0 xForward PE Multiple25.0 x20.0 x15.0 x10.0 x5.0 x0.0 xHAS 10-year avg fwd P/E: 1

58、7.2xHAS 10-year premium: +3.1xPremium/(Discount) vs. SPX12.0 x6.0 x0.0 x-5.0 xJan-09Jan-10Jan-11Jan-12Jan-13Jan-14Jan-15Jan-16Jan-17Jan-18Jan-19-10.0 xSource: Company reports and J.P. Morgan estimates and Bloomberg.HAS premium/discount to SPXHAS 1-year rolling forward P/E (realized) SPX 1-year forwa

59、rd P/E-6.0 xMattel Inc. (MAT) OverweightMattel Investment ThesisStory Transitioning from Stabilization to Reinvigorating Topline Growth and Margin ExpansionLeadership shakeup to return to growth and restore profitabilityCurrent CEO Ynon Kreiz was tapped to head MAT in April of 2018 (the 4th CEO in f

60、our years) amid falling sales and profitability. Currently, more than 50% of the top 20% of the leadership roles have new incumbents since then. Newly appointed key leaders (see Figure 15) include: the head of Mattel Films Robbie Brenner (experienced with overseeing Oscar winning movies), head of Ma