Bubble Mart: The leading domestic trend game, with plenty of space to go out to sea. 1) According to Sullivan, the size of China's trendy toy retail market grew from 6.3 billion yuan in '15 to 20.7 billion yuan in '19, with a compound annual growth rate of 34.6%. The industry's boom is prominent. It is expected to reach 76.3 billion yuan in 24, while the global trendy toy retail market will reach 41.8 billion US dollars, with huge room for overseas growth. 2) In terms of retail value, the company's market share ranked first in China in '21, an increase of 5.1 pct compared to '19, and the leading position is stable. The company officially began expanding overseas markets in '18, using strategies from B-side to C-side to establish brand influence on a global scale.

IP covers the entire industry chain, and strong operational capabilities build core competitive barriers. The four major IPs were established, and medium- and long-term value was gradually released: the total revenue of the four major IPs accounted for 50% in '23, down 8.1 pct from '19. Extend the IP lifecycle by expanding non-blind box categories and diversified application scenarios: 1) Continued promotion of existing categories:

23Q1-24Q2, the classic IP blind box series, is being released on average every quarter; the number of derivatives sold by THE MONSTERS and Ono has increased significantly in recent quarters. 2) Continuous expansion of categories: In 21-24, MEGA's high-end product line, bubble poppy, and popular product categories, vinyl plush, and building block product lines were launched separately. 3) Multi-application scenario layout: opening theme parks, developing mobile games, etc. to amplify the commercial value of IP.

Domestic channels are growing steadily, and going overseas has created a second growth curve. In 19-23, the company's revenue increased from 1.683 billion yuan to 6.301 billion yuan, and the share of overseas revenue increased from 2% to 17%. 1) Domestic: Online/offline/wholesale channels accounted for 33%/58%/9% of revenue in 23, respectively. The online channel uses the Bubble Mart drawer as an important pillar, and the Douyin platform has made a breakthrough. Retail stores contributed 82% of offline channel revenue in '23; revenue growth was mainly driven by opening stores. The number of retail stores increased from 114 in '19 to 363 in '23; estimates suggest that the ceiling of domestic retail stores was 434, with an overall penetration rate of 7%. 2) Overseas: Online/offline/wholesale channels accounted for 15%/60%/25% of revenue in 23, respectively. The revenue from online channels Shopee, Amazon, and the official website is relatively balanced, and there is still room for improvement in channel construction. Retail stores contributed 91% of offline channel revenue in '23, and offline store openings accelerated. In '23, the total number of overseas stores was 80 (including joint ventures and franchises). From January to July '24, the company added about 28 new stores globally. The Thailand/US market rapidly expanded, adding 4/5 offline stores; the overseas market had high pricing and high revenue, and profitability was superior to mainland China.

Profit forecasting, valuation and ratings: The dividends of the global trendy gaming industry are still there. Bubble Mart's multiple IPs have proven the company's strong advantages in IP operations, and a strong moat provides support for maintaining a leading position in the future; the company has initially built a trendy gaming ecosystem integrating IP derivatives such as blind boxes, parks, and games, and is steadily expanding overseas to open up a second growth curve. We expect the company's revenue for 24-26 to be 12.7/17/20.4 billion yuan (yoy +101%/+34%/+20%), respectively, and adjusted net profit of 2.935/3.914/4.783 billion yuan (yoy +147%/+33%/+22%). As a leading Chaowan enterprise in China, the company's IP operation capabilities have been gradually verified, and going overseas has brought high performance growth. It should have been given a certain valuation premium, covered for the first time, and given a “buy” rating.

Risk warning: the risk of macroeconomic downturn, new product expansion falling short of expectations, new market promotion falling short of expectations, loss of new business or long payback periods.