The 3Q24 non-IFRS net profit is expected to be 0.72 billion yuan, up 12% year on year. We expect the company's 3Q24 revenue to be 4.6 billion yuan, an increase of 20% year over year. Non-IFRS net profit was 0.72 billion yuan, up 12% year over year.

Key points of interest

Domestic business is expected to face a high base, and overseas agents are entering a peak season. In the third quarter, Mingchuang Premium's domestic business faced a high base (new popular IP Barbie in the same period last year). We expect revenue to increase by about medium to high units over the same period last year, and continue to open stores rapidly in terms of channels. In overseas markets, we expect our overall revenue to increase by about 40% year on year, and our stores have continued to expand rapidly since this year. 1) The overseas agency business entered the peak shipping season in 3Q24. Combined with the contribution of the new IP Harry Potter orders, we expect overseas agents to achieve a year-on-year increase of more than 25%; 2) In terms of overseas direct sales, we expect to continue the rapid year-on-year growth of more than 50%. TOPTOY's business is also rapidly opening stores. We expect 3Q24 revenue to increase by more than 50% year-on-year. TOPTOY opened its first store in Thailand in October, taking the first step in its global strategy.

Gross margin is expected to continue to increase structurally year over month, and cost ratio pressure is better than in the first half of the year. Considering the increase in the share of overseas business with high gross margins and the increase in the share of IP products, we expect 3Q24 gross margin to increase to more than 44%. In terms of cost ratios, the rapid opening of overseas direct stores in the first half of the year increased operating costs and expenses, causing the company's operating profit margin to decrease slightly year-on-year in the first half of the year. We believe that entering the second half of the year, the company will enter the peak season for overseas agents and overseas direct sales, and the negative operating leverage drag is expected to ease. We expect 3Q24's non-IFRS net profit margin to be about 15.8%, corresponding to non-IFRS net profit of 0.72 billion yuan, an increase of 12% over the previous year.

The IP strategy continues to advance, and the distribution of global interest consumption is accelerating. The company aims to become the world's number one IP design and retail group, and accelerate the upgrading of IP products globally. Since this year, popular IP products such as Loopy, BT21, and Chiikawa have actively deployed overseas markets, and opened new IP collection stores in the US, Germany, Malaysia, and Vietnam. 4Q24 Harry Potter IP products have been updated globally for the first time. We are optimistic about the company's continued deepening cultivation in the field of IP and consumer interests.

Profit forecasting and valuation

Keeping the company's 2024/25 EPS forecast of $2.15/2.59 unchanged, Hong Kong stocks currently correspond to 15/12 times 2024/25 non-IFRS P/E, US stocks correspond to 14/11 times, maintain the industry ratings for Hong Kong stocks and US stocks, and keep the target price of HK$40.86 /$21.09 unchanged, corresponding 16/13 times 2024/25 non-IFRS P/E. Hong Kong stocks have 14%/20% upside compared to current stock prices, respectively.

risks

The retail environment fell short of expectations, channel store openings fell short of expectations, and new business development fell short of expectations.