Key points of investment:
New categories such as building blocks have been launched, and IP continues to break the circle.
(1) The new Labubu Forest Secret Base series building blocks are expected to be launched on the online platform at 8 p.m. on June 13. The series includes 5 scenes. The price is between 199 and 399 yuan separately, and the price of the whole set is 1,335 yuan. As of June 11, Tmall's official flagship store had more than 10,000 additional purchases. Recently, Tmall has sold more than 5,000 new Bubble Mart POPCARD collectible cards. The company expects to launch three new product lines in 2024. We expect the share of non-blind box products to continue to increase, which is expected to increase the growth rate of the domestic market and increase the revenue of domestic stores.
(2) The company promotes IP and trendy entertainment culture through various methods such as trendy toy shows, offline stores, shopping mall exhibitions, joint partnerships, leading stars and KOL delivery, etc., to further accelerate IP breaking the IP circle.
The first Bubble Mart game, Dream Home, will be officially launched on June 27. The number of reservations on the official website has exceeded 3.3 million, and the Beijing Bubble Mart CityPark Phase II plan has officially launched, which is expected to continue to increase the global power of IP.
Go out to sea to level 1-100 to activate the multiplier effect.
(1) The company began a global layout in 2018, initially adopting B2B and B2B2C distribution models. In 2022, the company moved its strategic focus to DTC and began opening offline stores on a large scale to expand channels. The first overseas directly-managed store was opened in Korea in 2020. By the end of 2023, it had 80 stores, and is expected to open 50-60 stores in 2024.
(2) Overseas revenue in 2023 was 1,066 billion yuan (YOY +134.9%), accounting for 16.9% of revenue (up 7.1pct year-on-year). 2024Q1's overseas revenue increased 245% to 250% year over year. With IPs such as Labubu, Crybaby, and Peach Riot becoming popular around the world, the company's overseas growth will show a multiplier effect of “IP potential x channel growth”, and overseas revenue growth is expected to be no less than 100% (i.e. 2.1 billion yuan +) in 2024. In addition, overseas products are priced higher, gross margin is higher than domestic (24.9%/60.6% overseas/mainland gross profit margin in 2023), and is expected to reduce logistics/production costs and improve operational efficiency through the global supply chain.
The Douyin channel is growing rapidly, and new products are being promoted at a normal pace.
(1) According to Grizzly, the GMV of the three official Douyin accounts of Bubble Mart from January to May 2024 was 3764/3823/4243/6045/79.63 million yuan (-9.9%/+1.6%/+11.0%/+42.5%/+31.7%), totaling 258 million yuan (YOY +126%). Among them, the GMV for “Bubble Mart Douyin Flagship Store” in May was 61.14 million yuan (+45.5% month-on-month), totaling 187 million yuan (YOY +76%) from January to May 2024; [Bubble Mart Living Space] and “Bubble Mart Unboxing Experience Hall” in May were 1377/4.71 million yuan respectively.
(2) Recently released new products such as “HACIPUPU Forest Adventure” and “Zsiga Allows All This” blind box series and new MEGA products such as “MEGA SPACE MOLLY 400% +100% Powerpuff Girls” and “MEGA SPACE MOLLY 400% +1000% Diga Altman”. According to the official official account of Bubble Mart, a total of 37 new blind box products and 16 new MEGA products were sold from January to May 2024 (41/14 in the same period of 2023).
Profit forecast and investment rating: As a pioneer and leader in trendy fun culture and commercialization, the company operates and monetizes IP in multiple dimensions based on the advantages of the entire industry chain and platform. Furthermore, the product category expansion logic continues to be verified, and Going Overseas 2.0 starts a multiplier effect. Based on this, we raised the company's profit forecast. We expect 2024-2026 operating income of 86.37/112.04/13.627 billion yuan, net profit to mother of 16.34/21.56/270 billion yuan, adjusted net profit of 17.37/22.68/2,815 billion yuan, corresponding adjusted PE to 26.8/20.5/16.5X, maintaining the “buy” rating.
Risk warning: risks such as supply chain supply and quality control, operation management, increased manpower/rent/marketing costs, increased market competition, loss of personnel, falling short of expectations in IP renewals, dependence on a single IP, downward valuation center, lawsuits, overseas expansion falling short of expectations, and inventory impairment.