Incident: On October 22, 2024, Beijing time, Bubble Mart (9992.HK) released the operating data report for the third quarter of 2024. The company's overall revenue for the third quarter of 2024 increased 120%-125% year-on-year over the same period last year; by region, the company's revenue in mainland China increased 55%-60% year-on-year in the third quarter of 2024; revenue in Hong Kong, Macao, Taiwan and overseas regions increased 440%-445% year over year.

Looking at local channels in mainland China, offline retail stores grew 30%-35% year on year, offline robot stores increased 20%-25% year on year; bubble mart boxers increased 55%-60% year over year; e-commerce platforms and other online channels increased 135%-140% year on year. Among them, Douyin flagship stores increased 115%-120% year over year, Tmall flagship stores increased 155%-160% year over year; wholesale and other channels increased 45%-50% year on year. Reviews: Domestic online and offline channels are gaining strength, and the new pace of product development is accelerating. In the third quarter of 2024, the company's revenue in mainland China increased 55%-60% year over year. In terms of product supply, high-quality products continued to be updated in the third quarter. In July, August, and September, 11/12/9 blind box products and 6/8/4 MEGA Collection series were sold respectively. Offline channels are expanding steadily, and online channels are improving overall, driven by popular products.

In the third quarter of 2024, Bubble Mart's offline retail stores grew 30%-35% year over year, and offline robot stores grew 20% to 25% year over year. Looking at store openings, a total of 14 new stores (including 5 pop-up stores) were opened in August, and a total of 13 new stores (including 9 pop-up stores) were opened in September, and offline stores are steadily expanding. The company's online drawer machines increased 55%-60% year over year, Tmall flagship store increased 155%-160% year over year, and Douyin flagship store increased 115%-120% year over year. Popular products such as The Monsters and CryBaby returned on Tmall Super Product Day in August, and The Monsters vinyl face blind box quickly sold out. During the Douyin Super Brand Day in September, the Bubble Mart brand sold as much as 10 million yuan in a single day. We believe that in terms of online channels, as the fourth quarter enters major promotions and events, Double Eleven, Christmas, etc., it is expected that online channel revenue in mainland China will be further boosted.

International market expansion is accelerating, and overseas revenue performance is impressive. In the third quarter of 2024, the company's revenue in Hong Kong, Macao, Taiwan and overseas regions increased by 440%-445% year-on-year, mainly due to continued strong overseas demand and accelerated store opening. According to our statistics (official social media account, please refer to the company's caliber), by the end of September 2024, Hong Kong, Macao, Taiwan and overseas retail stores had added 22 new retail stores (including pop-up stores) to 114 retail stores (including joint ventures) compared to the end of June '24, and the number of new stores opened in the 24Q3 quarter exceeded the level of growth in the 24H1 quarter.

In July, Thailand, the Netherlands, Italy, the United States, Indonesia, France, and Vietnam each added 1 new offline retail store, while Korea added 2 new stores. In August, Hong Kong, Taiwan, Singapore, Malaysia, and the United Kingdom each added 1 new offline store, while the US added 3 new stores. In September, Macau, China, South Korea, Australia, and the US each added 1 new offline store. We believe that Q4 has entered the peak season for overseas sales, which is expected to further drive overseas performance growth. At the same time, online channels in Hong Kong, Macao, Taiwan and overseas regions have moved from extensive to refined operation through membership systems and holiday event planning.

IP monetization channels have been further broadened, and the consumer market has been diversified. On the basis of deep cultivation of leading IPs, the company continuously broadens IP monetization channels and enhances IP interactivity. On September 19, the “Dream Home” mobile game was linked to offline product sales for the first time, adding a gameplay method that qualifies for limited-edition physical figure purchases in the game, further enhancing IP interactivity. In terms of categories, the company continued to innovate categories, successively expanded business lines such as cards and building blocks in May, and launched new blind box formats such as photo frame series and POP CUBE series in July and August, respectively, to enhance the playability of trendy games. In terms of pipelines, the company continues to enrich its product line. As of mid-October, the company's Lucky Store Rewards cooperated with GuGuGuGu, Manku, Lawson, and 711 stores to achieve rapid offline delivery. At the same time, subsequent companies will launch new brands and open jewelry stores to sell products such as rings and bracelets. We have long been optimistic about the company's IP operating capabilities and the continuation of product variety and pipeline expansion.

Investment advice: Short-term key node activities catalyze the continuous growth of new products, and the company's domestic and overseas business continues to be booming. We predict Bubble Mart's 2024-2025 revenue of 125/17.2 billion yuan (previous value was 100.1/13.56 billion yuan), an increase of 98.4%/37.4% year on year; adjusted net profit (non-IFRS) for 2024-2025 will be 3.14/4.4 billion yuan, respectively (previous values were 23.1/3.15, respectively) billion yuan), a year-on-year increase of 163%/40%. In the long run, further broadening of IP monetization channels is expected to contribute to increased performance. We are optimistic about the company's IP's operational capacity and monetization potential for a long time, and maintain a “buy” rating.

Risk warning: industry competition heightens risk; IP performance falls short of expectations; new business performance falls short of expectations