The company's recent situation
Recently, we invited the company to attend the CICC 2024 Mid-Term Strategy Meeting to have in-depth exchanges with investors.
We believe that the company's operating performance continues to be excellent at this stage: domestic Q2 is expected to continue its rapid growth trend, overseas localization work continues to advance at the same time as rapid growth, and category expansion is being implemented in an orderly manner. We have raised our profit forecast for the whole year and reiterated our optimism about the company's broad growth prospects in the medium to long term.
reviews
1. Domestic sales continued to grow, and categories expanded and implemented. Based on our official account statistics, driven by derivatives and new categories, the pace of introducing new products accelerated in April-May. A total of 15 new blind box products were relatively stable. The total number of MEGA/vinyl face plush/other categories was 5/5/55, +1/+4/+23 compared to the previous year, which is expected to support Q2 performance growth and maintain a strong advantage. New category expansion was also successfully implemented. The first set of collectible cards was launched on May 30, and the building blocks (Labubu Forest Secret Base Series) were launched on June 13. Sales of the vinyl series previously launched continued to be high. We believe that successful category expansion is expected to further boost the vitality of IP and help develop user groups and consumption scenarios.
2. Overseas markets expand rapidly and continue to promote localized operation and settlement. According to the company's official account statistics, more than 20 overseas stores were opened in January-May, with Southeast Asia accounting for about 35%. In May, the Ba Na Mountain Scenic Area in Danang and the Crescent Mall in Ho Chi Minh City were newly opened. We expect that landmark stores will continue to improve average overseas store efficiency and rapidly expand their influence in the regional market. Following the establishment of a basic market in the East Asian market, the company is making efforts to expand the Southeast Asian market at this stage while continuing to strengthen the US strategic market layout. In terms of localization, the company collaborates with local designers to develop IP (such as Betao, Thai version of Labubu) based on different market preferences, and lays a solid foundation for long-term growth by hiring local teams responsible for opening and operating stores.
3. Driven by multiple factors, gross margin is expected to improve further. We believe that the company's gross margin is expected to remain steady, moderate, and upward as the share of new categories such as vinyl and building blocks increases to replace imported products, the smooth progress of overseas sales, an increase in revenue share, and the successive commissioning of production capacity in Vietnam, etc.
4. Innovative businesses are flourishing, and IP is expected to break the circle at an accelerated pace. The company's “Dream Home” mobile game was approved on June 27. As of 18:00 on June 17, we counted that the number of reservations had exceeded 3.9 million; preparations for the second phase of the park were also underway. In terms of IP licensing, the company cooperated with Lucky and Anta in April and Vans in June. We continue to be optimistic that the company's diversified innovative business will help break the IP circle and continue to open up a new growth curve.
Profit forecasting and valuation
Considering that domestic store performance has recovered well and continued to grow rapidly in Q2. Thailand, an important overseas market, has achieved a breakthrough and is expected to accelerate growth throughout the year. The adjusted net profit forecast for 2024/25 was raised by 7%/7% to 17.5/2.25 billion yuan. The current stock price corresponds to 27/20 times adjusted P/E for 2024/25. Maintaining an outperforming industry rating, the target price was raised 15% to HK$46 based on profit forecast adjustments, smooth breakthroughs in overseas markets, and continued progress in diversified businesses, corresponding to 31/23 times adjusted P/E in 2024/25, with 17% room for growth.
risks
Overseas expansion falls short of expectations, supply chain risks, market competition, popular IP dependency, policy regulation risks.