Core ideas

This article mainly studies why Bulu, the leading Chinese character building toy, was able to achieve rapid success and how to view its future growth potential.

The company is a leader in building block character toys. It launched in 2022 and focuses on building character toys, and has achieved rapid growth by relying on its own IP+ cooperative popular IP. Among them:

① Bruker's success mainly stems from entering the rapidly growing Chinese character toy circuit, and has provided consumers with a fun experience and cheap prices through cooperation with popular IPs, blind box sales, and standard parts production systems. Compared with Bandai, Bruker products are more cost-effective; compared to domestic manufacturers, Bruker products are more playable, richer in accessories, and more diverse in IP.

② Looking forward to the future, as the price band of the company's products sinks (helping channels expand the sinking market), the expansion of the IP matrix (helping the audience expand from primary and secondary school boys to older age groups and female user groups), and overseas sales of products, it is expected to drive the company's continued growth.

summary

Bruco: A leader in building block character toys in China. Good but not expensive, growing fast.

The company initially used building block toys as its main product. It was launched in 2022 and focused on building character toys. Relying on well-known domestic and foreign IPs such as “Altman”, the products were “good but not expensive” and achieved rapid growth. In 2023, the company achieved a GMV of 1.8 billion yuan by assembling character toys, making it the largest character toy company in China and the third largest in the world. 24H1's revenue was 1.046 billion yuan/ +237.6%, adjusted net profit of 0.292 billion yuan/year-on-year loss, 24H1 gross profit margin of 52.9%, and adjusted net interest rate of 27.9%. It was mainly due to a sharp increase in sales of the company's building block blind box products. The gross margin continued to increase due to scale effects, and the marketing shift to content-driven cost ratio improvement.

How to understand Bruker's success? ① First, thanks to switching to a rapidly growing racetrack, building character toys have both the charm of IP characters and an interactive play experience. They are a rapidly growing segment of the toy market. The GMV market size of Chinese character toys in 2023 is about 5.8 billion yuan/ +93.3%. ② Second, the company's products stand out from the competition, mainly because they provide consumers with a fun experience and a cheap price at the same time. The company's character building products combine consumers' love for IP (cooperating with about 50 well-known and popular IPs, with 2 own IPs, including Altman, Transformers, and Hero Infinity IPs, which account for 57%, 19%, and 16% of 24H1 revenue respectively) and blind box sales methods (providing fun to collect, 24H1 blind box accounts for 73.9% of sales revenue), innovatively adopting a “standard parts+characteristic parts” toy architecture. Most of the parts are standard parts, with excellent quality (mold accuracy 0.004 mm, character mood & restoration & assembly) Experience (good) while achieving scale effects on costs. ③ Finally, from a channel and marketing perspective, the company's offline dealer channel will expand rapidly from 2022 to help products reach terminals, build a consumer ecosystem through content-driven marketing strategies, enhance repurchases, and enhance brand influence.

How do you see Bruker's future growth potential? We believe that Bruker's future growth will mainly be driven by three aspects: ① Full price: As of 24H1, there are only 128 dealers in third-tier cities and below, and there is still room for expansion in low-tier channels. In November '24, the company launched the 9.9 yuan Transformers Star Edition, and may continue to launch affordable products with multiple IPs in the future to help the channel sink down and expand the market. ② All people: Currently, the company's customer base is mainly concentrated among elementary school boys, and there are still many IP resources to be developed. In the future, through the expansion of the IP matrix (such as Pokémon, Sanrio, Detective Conan), etc., it will help promote the expansion of the customer base to older age groups and female users. ③ Globalization: Currently, the company has obtained Altman IP licenses in North America, Europe and Asia. As the scope of IP licensing expands and overseas sales regions increase, such as in Southeast Asia, it may be expected to replicate the popularity of IPs such as Altman and Transformers in China.

Profit forecast: We expect Bruker's revenue for 2024-2026 to be 2.19, 3.45, and 4.34 billion yuan, respectively, up 149.8%, 57.7%, and 25.8%, respectively. Adjusted net profit to mother will be 0.58, 1.09, and 1.36 billion yuan, respectively, up 699.0%, 87.7%, and 24.0% year-on-year respectively. The first coverage gave a “buy” rating based on the company's high growth.

Risk warning:

1) IP license renewal risk: The love for IP is one of the motivations for consumers to buy. The company cooperates with several well-known IPs, mainly Altman and Transformers (24H1 accounts for 57% and 19% of revenue). If the IP license expires, it will adversely affect the company's operations. Based on the 24H1 situation, if IP licensing fees increase by 1, 3, or 5 percentage points in revenue, the company's adjusted net profit may decrease by 2.7%, 8.0%, or 13.3%.

2) Channel management risk: Since 2022, the company has rapidly expanded offline dealer channels. 24H1 revenue accounts for 91.6%, and cooperating dealers have 511. If the company's channel management capabilities are insufficient, it will cause channel inventory backlogs, price system chaos, or affect brand image and product sales.

3) Risk of changes in toy trends: Toy trends are changing rapidly. If the company fails to cooperate with IPs loved by consumers, develop new products that meet consumer needs in a timely manner, or affect the company's business performance and growth.

4) Market competition increases risk: If the number of competitors in the building block industry increases, or aggressive competitive strategies are adopted, it may adversely affect the company's revenue and performance growth.