Rating: Neutral
Current Price: HK$167.4 (as of 11 May)
Target Price: HK$158.9 (-5.1%)

Overview

POP MART is primarily engaged in the design and development of trendy toys. It operates a comprehensive platform covering the entire industry chain of intellectual property (IP) for trendy toys, with businesses including IP incubation and operation, trendy toys and retail, theme park and experiences, and digital entertainment. The company's products include blind boxes, figurines, ball-jointed dolls (BJD), MEGA, plush toys, and derivatives, among others. Its self-developed products primarily feature artist-owned IPs such as THE MONSTERS, MOLLY, SKULLPANDA, and CRYBABY, as well as licensed IPs, which are sold in both domestic and international markets.

High Margin Rivals Luxury Goods, but IP Concentration and Heavy-Asset Expansion Pose Risks

In 2025, the company achieved operating revenue of RMB 37.12 billion with a substantial year-on-year increase of 185%. Overseas sales accounted for 44% of total revenue, indicating that international markets have become a core growth engine. By product category, plush toys contributed 50.4% of revenue, surging 560.6% year-on-year. Centralized procurement effectively compressed costs, supporting profit release. Gross profit for the year reached RMB 26.76 billion, up 207% year-on-year, outpacing revenue growth. The gross margin stood at 72.1% with an increase of 5.3 percentage points. This margin rivals that of luxury goods (typically 60%-80%) and significantly exceeds conventional product pricing logic, reflecting strong pricing power driven by popular IPs and emotional value. In terms of IP structure, artist IPs generated 90% of revenue, with The Monsters contributing over RMB 14 billion, or 38% of total revenue. This highlights heavy dependence on hit IPs such as Labubu, SkullPanda, Molly, DIMOO, and Twinkle Twinkle. Should the company fail to continuously create new blockbuster IPs, a decline in the popularity of core IPs would put downward pressure on revenue.

On the expense side, distribution and selling expenses for 2025 totaled RMB 8.08 billion, up 121% year-on-year. Within that, commissions and e-commerce platform service fees were RMB 1.44 billion (+134%), advertising and marketing expenses were RMB 1.19 billion (+110%). While promotion and customer acquisition costs were gradually diluted as revenue grew, short-term lease and variable lease-related expenses reached RMB 1.34 billion (+192%), and transportation and logistics expenses reached RMB 2.043 billion (+276%). These increases indicate simultaneous expansion of stores, headcounts, and logistics systems, raising fixed operating costs -- necessary for revenue growth, but also a double-edged sword: if IP sales weaken, the heavy-asset nature makes it difficult to scale back costs quickly, thereby hurting profits. General and administrative expenses were RMB 1.77 billion (+87%), significantly below revenue growth, demonstrating that the company had achieved economies of scale and built certain industry barriers.

City Theme Park Upgrade Exceeds Expectations, IP Omni-Scene Ecosystem Accelerates

Pop Mart's City Theme Park, a core offline IP ecosystem venue, recently saw major progress: part of the upgraded area has been completed, with 70% of new content opened early to the public on April 30 (ahead of the May Day holiday). The remaining landscape construction is expected to be fully completed by late July to early August. The park's first full operating year (2024) was already profitable, as the company prioritizes long-term refinement over short-term returns. Notably, even when only about one-third of the area was open, visitor traffic increased significantly, with non-family and non-local visitors each accounting for more than half. The concurrent expansion of "popop" accessory stores (in Beijing and Shanghai) and the independent dessert brand "POP BAKERY" (over 10 pop-up events in multiple cities) further enriches the IP consumption scene matrix, collectively building an immersive themed experience.

Venturing into Small Home Appliances: High Premium, Weak Stability

Leveraging its IPs, Pop Mart has entered the small home appliance sector with an initial product line covering five categories, including the LABUBU refrigerator. Adopting an OEM asset-light model, the company plans to first establish a foothold in mainland China before expanding overseas. The LABUBU refrigerator, limited to 999 units globally and priced at RMB 5,999, garnered over 47,000 pre-orders before launch. Its secondary market price once surged to RMB 20,000 but later retreated; after a second batch sold out quickly, some units were resold below the original price. This reflects high emotional premium elasticity but weak stability. The home appliance industry's gross margin is significantly lower than the company's 72.1% overall margin, so near-term earnings contribution is expected to be limited. The long-term strategic rationale is to extend IPs into high-frequency scenarios. Home appliances are functional goods, with quality control and after-sales requirements far exceeding those of blind boxes; failure to meet practical standards could undermine IP trust. While a limited-quantity strategy remains effective in the short term, whether consumers can transition from impulse buying to pragmatic repeat purchases remains to be seen.

Valuation and Investment Recommendations

As China's leading pop toy company, Pop Mart has the capability to cover the entire IP value chain, precisely capturing market demand for emotional consumption while continuously building a diversified IP matrix. The company's 2025 revenue surged, gross margin rivaled luxury goods, overseas and plush product segments drove strong growth, and scale effects are evident. However, IP concentration, heavy-asset expansion, and the quality control and repurchase risks of cross-sector home appliances coexist. We believe the company's share price will depend on the stability of new IP incubation and new scenario profitability. We project revenue for 2026¡V2028 at RMB 44.54 billion, RMB 51.58 billion, and RMB 58.03 billion respectively, with EPS of RMB 11.52 / 14.03 / 16.08. We downgrade the rating to Neutral, with a target price of HKD 158.9, corresponding to 12x forecast 2026 P/E.

Risk factors

1) Macroeconomic downturn impacting end-consumer spending;
2) The company's overseas expansion falling short of expectations;
3) Weakening appeal of IPs/products;
4) Intensifying industry competition.

Financial

Current Price as of: 11 May
Exchange rate: HKD/RMB = 0.87
Source: PSHK Est.

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