The analyst thinks the company, which listed in December 2020, deserves a “no-moat rating” based on the “shorter lifespan” of Pop Mart's top intellectual properties (IPs), limited successes outside of toys and weaker pricing power versus global IP operators.
Zhang also cautions that Pop Mart faces “uncertainties regarding the renewal of its licensed IPs”, as the group has been selling toys in the likeness of Disney and Sanrio characters.
Pop Mart “shares are overvalued as the market overlooks the high unpredictability as to the popularity of its main IPs”, writes Zhang, comparing it against Japan-listed peer Sanrio and the US-listed Mattel and Walt Disney.
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About the business
Pop Mart divides its business into four segments: IP incubation and operation, pop toys and retail, theme park and IP experience, and digital entertainment.
Their products are sold in China, Hong Kong, Macau, Taiwan, and some other countries and regions, including Singapore.
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Pop Mart generates the majority of its revenue from its retail store, but also earns money from vending machine sales, wholesales and online sales. It has two reportable segments: mainland China operations and Hong Kong, Macau, Taiwan and overseas operations.
Pop Mart maintained “solid” y-o-y top-line growth of 165% to 170% in 1QFY2025 ended March 31, driven by a 475% to 480% surge in overseas sales, notes Zhang.
“With Labubu's new series being well-received globally after its second-quarter launch, we expect 132% revenue growth for the first half,” he adds.
Zhang expects the firm to post a 36% CAGR over 2024 to 2029 as it further gains traction among fans. “ We anticipate that The Monsters (including Labubu), Molly and Crybaby should remain its best-selling IPs, with an expanded lineup of plush and mega toy products.”
“We expect Pop Mart to ride on global consumer interest in pop culture to raise its profile in regions such as Southeast Asia, Europe and North America. Hence, we foresee overseas revenue growing faster than domestic sales, reaching a 72% sales mix in 2034, up from 39% in 2024,” adds Zhang.
In addition, “higher-margin” overseas sales should lift Pop Mart's gross margin by 140 basis points to 68.2% in 2034 from 2024. “While domestic sales growth is expected to decelerate, we project stable long-term profitability, as price hikes offset rising production costs,” says Zhang.
As at 1.27pm, shares in Pop Mart are trading HK$6 lower, or 2.67% down, at HK$219.
