In a July 16 note, CGSI analysts Charlotte Zhou, Lei Yan and Aaron He say they “underestimated” Pop Mart’s intellectual property (IP) growth potential, and the 1HFY2025 results are likely to beat their expectations.
The CGSI analysts believe the accelerating q-o-q revenue growth was mainly driven by Pop Mart’s increasing IP reputation in the global market, higher overseas revenue contribution and diversified product categories.
They see Labubu becoming even more popular globally after the release of the third edition of the viral toy in late April.
Due to a surge in secondhand prices and lack of inventory across channels, Pop Mart restocked its Labubu toys on June 19, which will be delivered in 2HFY2025.
See also: China’s warning on blind-box toys sends Pop Mart shares sliding
Although the secondhand prices of Labubus have rebalanced to 1.6 times of the original selling price compared to 3.4 times at its peak, CGSI believes it will provide a “better shopping experience” and be “healthy” for long-term IP operations.
Apart from the Labubu line, CGSI sees a “second growth curve” for its other IPs, especially Twinkle Twinkle and Crybaby, with the secondhand prices of both lines currently up to 1.4 times of their original prices.
“We expect Pop Mart’s IPs will have a longer lifecycle and greater commercialisation potential than what the market expects, as it continuously expands to new consumer groups and explores new IPs and product categories,” they write.
See also: Pop Mart's 200% stock rally spurs rush to hike price targets
CGSI expects overseas revenue to grow by 226% in FY2025, helped by some 51 net new stories by end-July for a total of 171 overseas stores.
According to Google Trend, Labubu’s worldwide popularity has surpassed Harry Potter since April, notes CGSI. Moreover, the official Pop Mart app reached top ranking in the US and Australia Apple App Store in terms of downloads in April and June respectively.
CGSI’s Zhou, Yang and He stay “add” on Pop Mart with a higher target price of HK$312, up from $304 previously.
‘Still expensive’
Meanwhile, Morningstar analyst Jeff Zhang says the profit alert “significantly” exceeded his expectations.
He estimates Pop Mart’s overseas revenue to grow 480% y-o-y in 1HFY2025, fuelled by deeper penetration in North America, Europe and Southeast Asia.
Domestic sales, meanwhile, are also poised to increase by more than 80% y-o-y due to strong traction in its flagship IP.
Zhang has raised his FY2025-FY2027 compound annual net profit growth forecast to 60% from 50% previously.
“We keep our long-term growth forecast intact and expect the firm's top-line growth to slow to the high-single-digits to low-teens after 2029. We also note lingering uncertainties around the durability of Pop Mart's main IP and the licensing income from non-toy sectors,” writes Zhang in a July 16 note.
Zhang has a three-star rating on “no-moat” Pop Mart against Morningstar’s five-tier scale, with a higher fair value estimate of HK$202 from HK$164 previously.
“That said, we still view the firm's shares as overvalued, as the market may have overlooked the elevated business risks associated with its IPs,” he adds.
As at 3.45pm, shares in Pop Mart are trading HK$3.40 lower, or 1.35% down, at HK$249.20.
