Thanks to strong revenue growth in overseas markets and e-commerce platforms, Pop Mart's third-quarter performance exploded, with international investment banks bullish and significantly raising the target price.

On October 21, Morgan Stanley raised Pop Mart's target price to HK$81 and reiterated an 'overweight' rating. Analysts like Dustin Wei believe that factors such as the potential in overseas markets like Europe and the Americas, an innovative product line, and the recovery of the Chinese market are expected to continue driving Pop Mart's rapid growth.

Despite concerns about the high base in 2024 affecting growth in 2025, Morgan Stanley believes in Pop Mart's ability to create hit products and continue to drive its intellectual property product flywheel.

Morgan Stanley's latest target price implies a 28% upside from Pop Mart's closing price of HK$63.45 on October 22. It is worth mentioning that this is Morgan Stanley's sixth target price increase for Pop Mart this year, less than a week after the last increase.

Goldman Sachs raised Pop Mart's target price to HK$70 and maintained a neutral rating. Analysts like Michelle Cheng from Goldman Sachs mentioned in the report that although Pop Mart's IP strength is strong, uncertainties in the current retail environment and consumer spending outlook lead to a conservative view on its profit margin prospects. Jefferies Financial also maintains a buy rating with a 52% target price increase to HK$80.5.

On Wednesday, Pop Mart's stock in Hong Kong surged over 20% during trading, rising 18.12% to HK$74.95 by midday, with a year-to-date increase of over 275%.

Morgan Stanley: bullish on three main drivers – overseas markets, product innovation, and China's recovery.

According to the latest financial report, Pop Mart's third-quarter revenue increased by 120%-125% year-on-year, with Mainland China's revenue increasing by 55%-60% year-on-year, and revenue from Hong Kong, Macao, Taiwan, and overseas increasing by 440%-445% year-on-year.

Morgan Stanley stated that this strong growth far exceeded the bank's expected growth of 70-75%, and is expected to further boost Pop Mart's operating profit. Morgan Stanley believes that three driving factors will bring good sales growth to Pop Mart in 2025-26:

Overseas Potential: In 2024, very strong overseas sales were mainly driven by Asia, and Pop Mart is also accelerating the opening of stores in the USA and Europe. Although store revenue in the USA is lower than the Southeast Asian market, it has recently risen to over 2.5 million RMB per month. More importantly, there is much more space to open stores in the USA than in Southeast Asia. Management emphasizes that the USA will be a key source of long-term overseas growth.

Expanding Business Lines: Pop Mart's building block product line had only three series in 2024, all based on Labubu intellectual property. In 2025, the company will introduce more products with different intellectual property, including building blocks, jewelry, dessert shops, cards, etc. If one of them succeeds, the incremental revenue could be significant in the long term. This will demonstrate Pop Mart's intellectual property product flywheel - better products strengthen its intellectual property, stronger intellectual property makes the products more popular.

Upside Potential from China: Despite challenging macroeconomic conditions, Pop Mart's sales in Mainland China increased by about 40% year-on-year. With the increasing possibility of improved consumer sentiment in 2025, Pop Mart is expected to benefit from this potential improvement.

Morgan Stanley has raised the earnings per share (EPS) expectations for Pop Mart in 2024, 2025, and 2026 by 27%, 18%, and 14% respectively, raising the target price to 81 Hong Kong dollars, reiterating an overweight rating, and applying a multiple of 30 times the target P/E ratio for 2025.

Morgan Stanley also mentioned that the very high base in 2024 may make some investors concerned about the growth space in 2025, but Morgan Stanley reiterated their belief in Pop Mart's intellectual property product flywheel.

Goldman Sachs: Raised the target price to 70 Hong Kong dollars, but has a conservative view on interest rate prospects

Goldman Sachs believes that Pop Mart's strong performance in the third quarter demonstrates its powerful intellectual property drive and solid category expansion execution, enabling it to achieve a significant increase in store productivity amidst fluctuations in the offline retail environment.

Goldman Sachs is surprised by Pop Mart's overseas and online revenue growth speed.

According to management, the proportion of overseas sales exceeded 45% in September, a significant increase compared to the first half of the year's 30%, which will bring further blended income and stronger operational leverage.

Pop Mart's e-commerce channel grew by 135%-140% in the third quarter, with TikTok showing continuous rapid growth and significant acceleration in the growth of the Tmall flagship store.

Goldman Sachs pointed out that Labubu, as a star product, contributed 10% of sales in the first half of the year, with a year-on-year growth rate of 10 times. Goldman Sachs' latest tracker indicates that despite the increase in supply, price premiums in the secondary market continue.

Goldman Sachs stated that as a pioneer in intellectual property development in the Chinese toy sector, Pop Mart's leading market share position is supported by three core capabilities: 1) mature experience in creating/acquiring intellectual property; 2) commercialization ability; 3) strong consumer engagement. It is evolving into a platform with enhanced intellectual property portfolio and new ways of monetization.

Goldman Sachs raised Pop Mart's target price for the next 12 months to HK$70, but maintains a 'Neutral' rating. Goldman Sachs has a cautious view on Pop Mart's profit margin prospects, believing that the weakening consumer spending power will impact the visibility of the company's revenue, and the intellectual property rollout schedule may also be affected by offline traffic fluctuations.

Editor / jayden