Pop Mart International: pioneer of Chinese trend Toy Culture

Pop Mart International is the largest and fastest growing fashion toy company in China. IP is the core of the company's business. The company has established an integrated platform covering the whole industry chain of trendy toys, including artist discovery, IP operation, consumer access and the promotion of trendy toy culture.

By the end of June 2020, Pop Mart International operated 93 IP, including 12 own IP, 25 exclusive IP and 56 non-exclusive IP. The company's internal design team currently has 111people, has rich art and design experience, and works closely with IP providers to develop commercial cultural products.

Pop Mart International has set up multi-level sales channels, including physical stores, robot stores, online sales channels, trendy toy exhibitions and wholesale channels. The company strives to create a highly sticky fan community and cultivate a young, enthusiastic and fast-growing fan base.

The course of Development & shareholding

Pop Mart International was founded in Beijing in 2010 and started Tmall's flagship store business in 2016, launching the company's first independent trend toy product line, the Molly Constellation Blind Box series in the same year.

"Molly" as the company's first self-owned IP, each series of products have been widely welcomed and continue to promote the rapid development of the company's business. Beijing Pop Mart International will be listed on the new third board on January 25, 2017.

In order to seek greater development, the company completed delisting on the new third board on April 2, 2019. Before delisting, the market capitalization of Beijing Pop Mart International was 2 billion yuan.

The founder and actual controller is Mr. Wang Ning. According to the shareholding structure disclosed in the prospectus, Mr. Wang Ning has a total equity of 56.33% through GWF, POP Mart Hehuo and Tianjin Paqu respectively.

At present, Pop Mart International's equity is slightly scattered, and most of them are 43.67% of the company held by institutional investors. Sequoia Capital, who holds a 4.96 per cent stake in the company through his Sequoia growth fund, is the company's largest institutional investor. China Renaissance Holdings Ltd. and Shanghai Fengqiao Investment are the main equity holders of the company.

China's trendy toy market is in the ascendant.

Trendy toys refer to toys that skillfully integrate trendy culture and content. Different from traditional toys, fashion toys are generally characterized by unique design and beauty, and in most cases come from authorized trend content, making them more suitable for display and collection beyond functional uses. Fashion toys cover a wide range of products, including blind boxes, hand-made, GK hand-made and adult assembled toys.

China's trendy toy retail market is in its early stage and is growing rapidly. According to the prospectus, the market size of China's trendy toy retail increased from 6.3 billion yuan in 2015 to 20.7 billion yuan in 2019, with a GAGR of 34.6%. It is expected to reach 76.3 billion yuan in 2024 and 29.8% CAGR from 2019 to 2024.

Chinese fashion toy fans, mainly 15-40 years old, well-educated generation, most of them have college degree or above. Trendy toy buyers, many of whom are fans, are loyal and can accept higher prices. 68.5% of fashion toy consumers bought more than once in 2019, of which 19.8% bought more than five times, while 27.6% of fashion toy customers were willing to pay more than 500 yuan for their favorite fashion toys.

The main drivers of growth in the trendy toy market include:

1) the fans of trendy toys have high loyalty and the group is gradually expanding.

2) the design of products such as "Blind Box" promotes the trend of toys from niche market to mainstream market.

3) with the development of China's pan-entertainment market, box-office IP has been released step by step.

4) China's per capita disposable income is gradually increasing, and consumption power and consumption demand are gradually increasing.

In terms of retail value, the market shares of the top five market participants in China's trendy toy retail market in 2019 were 8.5%, 7.7%, 3.3%, 1.7% and 1.6%, respectively. Pop Mart International ranks first, with a market share of 8.5%.

In the "Singles Day" of Tmall in 2020, Pop Mart International Tmall's flagship store sales reached 142 million yuan, ranking first among Tmall toy brand flagship stores. Among the top players in China's trend toy industry, Pop Mart International is the only one with an integrated platform covering the industry chain, including IP operation, OEM production, consumer contact and fashion toy culture promotion.

Operating bright spot

Pop Mart International's performance has exploded in the past three years, with income rising rapidly from 158 million yuan in 2017 to 1.68 billion yuan in 2019, with an annualized compound growth rate of 226.3 percent. In the first half of 2020, the company's revenue increased by 50% year-on-year to 820 million yuan RMB.

Net profit increased from 1.569 million in 2017 to 450 million in 2019, a sharp increase of 27.8 times. The company's net profit in the first half of 2020 increased 24% year-on-year to 140 million yuan RMB.

The outbreak of performance on the one hand is due to the fact that as a pioneer and promotion of Chinese trend toy culture, this has actively promoted the rapid growth of China's trend toy market, on the other hand, the companyThe rich layout of sales channels and the innovation of marketing methods of blind box products have greatly promoted the outbreak of the company's revenue. after the company has achieved a leading position in the industry, with strong IP operation ability as the core, it has created an integrated platform for the whole industry chain of trendy toys.Continue to create high-quality IP and increase consumer stickiness

The growth rate of the company's sales revenue and net profit in the first half of 2020 was slower than that in 2019, mainly due to the impact of the COVID-19 epidemic. Due to the epidemic layer, the company temporarily closed 88 offline retail stores and 279 robot stores. Same-store sales in retail stores and robot stores fell by 23.1% and 52.8% respectively, adversely affecting sales.

Pop Mart International also adjusted the release schedule of some IP products. For example, due to the adjustment of the product release schedule of Molly, the sales revenue of Molly products decreased by 36% in the first half of 2020 compared with the same period last year. It is expected that after the haze of COVID-19 's epidemic gradually dissipates, the company's revenue and net profit growth will return to a faster track.

Strong IP operation capability

IP is the core of the company's business competitiveness. As an industry leader, POP Mart has obvious advantages in resources. With all-round strong IP operation capabilities such as product development, professional team and effective management, IP has enhanced the commercial value, brand awareness and cash realization ability of the company's IP library, forming a virtuous circle from IP creation to IP operation.

IP is the core of the company's business. The company holds high-quality IP resources and has created a large IP with annual sales of more than 100 million yuan.

In 2019, the top four IP of the company generated revenue of more than 100 million yuan. It is its own IP:Molly and Dimmo; exclusive IP:PUCKY and The Monsters, of which the signboard IP Molly has sales of 456 million yuan RMB only in 2019. The sales performance of more than 100 million yuan of the company's IP proves the strong strength of the company's operation in IP.

Sign IP "Molly"

In 2016, Pop Mart International launched the first independent fashion play product, the "Molly Zodiac" blind box series. Once launched, Molly became the company's signature IP.

Molly was created by artist Mr. Wang Xinming in 2006 and launched a fashion play product, but it has always been limited to a niche market. Until 2016, with the strong operation of POP Mart, Molly gradually came into public view. After its debut, the company customized a comprehensive IP operation plan around Molly, committed to developing Molly-related products, and enhanced the popularity and commercial value of Molly.

Molly is also the company's first operating IP. In 3 years, the company launched a number of Molly blind box series, and developed a variety of hand-made and derivatives for Molly, including exchange cards and badges. The company has developed the joint products of Molly and world-famous IP (the company is not exclusively licensed IP): "Mickey and Minnie", "Despicable Me" and "Hello Kitty".

In 2019, the revenue from Molly's independent development products reached 456 million yuan RMB,2017-2019, and the revenue generated by Molly's independent development products grew at a compound annual growth rate of 242.1%.

For the successful operation of Molly, it is being replicated to many IP, such as PUCKY, Dimoo and The Monsters. Based on these IP, the sales of Chao play products have broken through the RMB 100 million mark in 2019. We expect the company to incubate more own IP and exclusive IP with annual sales of more than 100 million.

Blind box, the most suitable product design for fashion play.

Pop Mart International Blind Box products built-in hand around the popular IP design, each product series has a unique theme, usually including 12 conventional shapes and a special design of the "hidden model", the "hidden model" appears very low probability, generally 1100x144, or even lower, such as Molly's Westward Journey series of golden special series, the probability of winning is as low as 1200720.

Pop Mart International ranked first in sales of blind box products in the country. According to the CBND report, online sales of blind boxes increased sevenfold in 2019, and the number of blind boxes purchased by consumers per capita reached 4.2. According to the "CBND" report, blind box brand sales of TOP8, are mainly sales of blind box fashion play, of which Pop Mart International ranked first in sales.

The uncertainty of blind box products and the scarcity of specific hidden items increase the psychological attractiveness of consumers, and the simple shopping process increases the entertainment experience.The surprise of the blind box when opening the box and the desire to collect specific styles will increase consumers' repurchase.。

Blind box products have a price and a market in the secondary market. At present, Blind Box has a prosperous second-hand trading market. Online trading platforms include: Taobao, Hanqu and Xianyu. Looking at Xianyu's data alone, there are 300000 blind box players trading in Xianyu in 2019, and the number of idle blind boxes released every month has increased exponentially.

Some popular models, especially hidden ones, sell for nearly a thousand yuan, while the second-hand prices of some blind box models have increased 39 times. The second-hand market with price and market can effectively provide material satisfaction for customers who have won a specific style.

Pop Mart International is the leader in the design of Chinese Chaozhou Blind Box. Pop Mart International around several major IP design of blind box products, continue to promote the Chinese market blind box craze, but also achieved the explosive growth of their own performance.

Omni-channel sales, layout of the whole country, the most cost-effective convenient shopping experience

From the point of view of the layout of the sales network, Popomat's offline sales network, with retail stores and robot stores as the main channels, has basically covered the whole country, and overseas markets have also been actively explored through dealers.

21 countries. The company's omni-channel sales network is conducive to the company's full contact with different consumers and attract customers with different needs with their own unique shopping experience and fun.

By the end of June 2020, Pop Mart International had opened 136 retail stores and 1001 robot stores, with a network of stores covering China's major first-and second-tier cities. Offline sales network has basically covered the whole country.

Online sales even break through geographical restrictions, in the mainstream e-commerce platform and other sales channels, can contact consumers across the country. In overseas markets, the company sells in 21 overseas countries through joint venture companies and distributors, including South Korea, Japan, Singapore and the United States.

Valuation analysis

Pop Mart International was founded in 2010. since 2011, the company has carried out Dolun financing. It was listed on the new third board in the mainland from January 2017 to April 2019.

Based on the fact that the company is in a period of rapid growth and expects rapid profit growth in the next two years, based on the 2020-21 CAGR70%, the net profit in 2021 is expected to reach 1.3 billion RMB, equivalent to HK $1.53 billion. According to the current IPO valuation of 43.52 billion-53.19 billion Hong Kong dollars, it is equivalent to 28.4% 34.7 times 2021 PE, and the median corresponding to 31.6 times 2021 PE.

The valuation of the IPO is similar to that of leading companies with brand effect in consumer stocks, such as JS Global, Anta and Li Ning Co. Ltd.. And the company as a unique trend culture toy company, with scarcity, comprehensive consideration sponsor Morgan Stanley, CITIC past sponsor project after the listing performance is better, the stock price is expected to have upward space.

Risk Tips:The life cycle of cultural products of each trend is relatively short; at present, performance growth depends on signboard IP Molly.