Pop Mart has released its unaudited 1Q24 business performance which exceeded market expectations. While domestic revenue recorded resilient growth, overseas revenue surged by 245-250% YoY, which should be a favourable surprise to the market. With increasing number and booming sales of overseas retail stores, Pop Mart has demonstrated its appeal to local consumers. Additionally, we believe Pop Mart is effectively diversifying its product categories to reduce reliance on blind box, given the strong performance of stuffed toys and the forthcoming release of toy bricks in June. We revised up our target price to HK$39.6 and maintain BUY.
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Key Factors for Rating
Decent growth recorded across channels and markets. Pop Mart reported 40-45% YoY revenue growth in 1Q24, sustaining its momentum in 2H23 (+54% YoY), largely driven by expeditious development of overseas segment (+245-250% YoY). In Mainland China, revenue generated from retail stores and roboshops elevated by 20-25% and 15-20% YoY respectively, indicating that the new product collections, such as Skullpanda: image of reality and Dimoo: animal kingdom, were well received by customers. Pop Draw, which accounted for 43% of domestic online sales in 2023, resumed growth at 0-5% YoY in 1Q24, following a retreat of 25% YoY in 2023. Sales on e-commerce platforms also maintained steady growth of 20-25% YoY in 1Q24, with Douyin continuing to outperform the others. Furthermore, wholesales and other channels climbed 50-55% YoY in 1Q24 revenue.
Overseas expansion progressed smoothly. On 9 Feb, Pop Mart unveiled its third retail store in Bangkok, Thailand and witnessed retail sales value of RMB5m on the opening day, setting a new record among all Pop Mart's retail stores globally. The company further expanded its footprint in Southeast Asia with the launch of two retail stores in Vietnam in March. As the international sales volume continues to escalate, we expect the company to progressively increase local sourcing to mitigate pressure on shipping costs. We believe the company is well on track to achieve international store count of 130-140 by the end of 2024 and anticipate overseas segment to contribute 27% of group revenue in 2024.
Product diversification to enhance revenue growth certainty. We expect the imminent highlight for Pop Mart will be the toy bricks scheduled for June. After gradually enriching product categories, the company has reduced its reliance on blind boxes and thereby gained additional growth drivers. This should also increase users' stickiness while reducing risks related to blind boxes.
Key Risks for Rating
Downside risks: (i) fierce competition and change in consumer preference; (ii) deteriorated brand equity; (iii) inability to secure popular IPs; (iv) regulatory uncertainty; (v) overseas expansion uncertainty; and (vi) commodity inflation.
Valuation
We revised up our 2024/25/26E core net profit forecasts by 7.5/8.4/8.2%, mainly to factor in rosy overseas performance. We derived our new TP of HK$39.6, based on 30x 2024E P/E (previous: 25x). We believe Pop Mart could enjoy a higher multiple as its accelerated overseas revenue growth wiped out investors' concern regarding the sustainability of overseas expansion.