Recently, there have been important changes in the company's IP operations: 1) category breakthroughs: cards and building blocks were released after the popularity of plush was confirmed; 2) content upgrade: Park Phase II was launched, and the game was about to be released; 3) IP's global influence increased. We expect to drive mainland and overseas businesses to exceed expectations and continue to recommend!
Upgrading IP operations and increasing global influence
According to the previous in-depth report “Mainland China: Reaching the Clouds to See the Sun, Bubble Mart's Changes and Changes”, the company's IP mechanism consists of two parts: Creation X and operation, both of which have recently been marginally optimized.
1) IP operation: Category breakthroughs, content deepening, LABUBU's new top-tier category breakthrough: LABUBU Heart Macaron Vinyl Plush was launched in October 23, new cards will be released in May '24 (the WeChat Mall shows sold out), new building blocks are expected to be released on June 13, and there are new numbers of new entrances in the second half of the year. The company mainly focuses on blind boxes. We believe that category breakthroughs will open up room for long-term growth. According to Euro Rui, the blind box doll/building block/plush toy market share in the Chinese toy market in 2022 was 35%/52%/19% respectively, and the price of the company's newly launched plush/building blocks is higher than that of blind boxes, so there is plenty of room for growth.
Content deepening: In May, it was announced that the second phase of the park project began planning and design work. Going back to the first month of the first phase, it received nearly 100,000 visitors, with excellent revenue contributions and support for IP content; the first self-developed mobile game “Dream Home” is expected to be launched on June 27.
Category Breakthrough X content deepening boosts LABUBU's new top-tier IP: The IP was launched as early as 2019, igniting domestic popularity with the double support of the new Plush Category X Park performance. For example, the Heartfelt Macaron series was hard to find, and the second-hand market premium ranged from 2-9 times. The company took advantage of the victory and followed up the launch of this IP-related blind box/figure/peripheral. It was released in April in collaboration with Lucky to increase the number of users. At the same time, Lisa, a member of a world-renowned girl group, is showing off her baby on social media Instagram, promoting a global boom. Currently, the premium in the Thai second-hand market ranges from 3-16 times.
2) IP Creation: New gameplay, localization, increasing global influence. Up-and-coming IP PEACH ROIT uses a new “virtual idol” gameplay, and the blind box release matches the debut single to strengthen its talent, and the IP designer is from the US, and the first series is in the top 1 sales in the US; the up-and-coming IP CRYBABY designer is from Thailand, and sales entered the top 2 in Thailand in the first two months of 24 years. From its own IP LABUBU and Ono HIRONO to cutting-edge IPs, the global influence of the company's IP continues to grow.
The differentiation in overseas IP creation is prominent. Overseas limited launches include MEGA RAINBOW, which matches the rainbow social trend, and the Gongyu IP Blind Box linked to popular dramas.
Mainland business: Increased store efficiency, Douyin reached a new high
Mainland revenue increased 20-25% year over year in 24Q1, with high offline growth and online correction. We expect this trend to continue.
Looking at the breakdown: 1) Offline: According to the official account of Bubble Mart, as of 5/30, the number of domestic stores was 426. Compared with +63 at the end of '23 (incomplete statistics, or no closure involved), in addition to the acceleration of offline store openings, we expect store efficiency to benefit from increased sales of new products; 2) Online: Q1 online correction, Douyin's average monthly GMV continued to break through, breaking through 30 million yuan in 23Q4. According to Grizzly, the average GMV further exceeded 50/80 million yuan in April '24.
Overseas business: store opening accelerated X store efficiency exceeded expectations = accelerated growth According to the bubble model, as of 5/30, the new overseas stores were 2 in the US, 2 in Thailand, 2 in Vietnam, 2 in France, and 1 in Sydney (incomplete statistics). Overseas companies are expected to open 50-60 new stores. Overseas, in particular, Southeast Asia's performance exceeded expectations, store opening accelerated (Vietnam's two stores opened in May), and store efficiency exceeded expectations (the sales volume of the 3rd store in Thailand broke 5 million yuan on the first day). We expect the global influence of IP to increase as localized operations gradually mature There is still room for potential energy to be released.
Profit forecasting and valuation
We are optimistic about the company's mainland recovery to rapid growth and accelerated overseas expansion. In the medium to long term, we are optimistic that the company's IP operation and creation will enter a new stage, and that global influence will gradually be built. Based on high growth in the mainland and acceleration overseas, we raised our profit forecast. We expect revenue of 87.7/11.20 billion yuan for 24/25, an increase of 39%/28%, net profit to mother of 15.4/2.0 billion yuan, an increase of 42%/30%, corresponding to the current market value of PE 30.8x/23.7x, adjusted net profit of 16.2/2.07 billion yuan. The current market value corresponds to PE 28.8/22.4x, maintaining the “buy” rating.
Risk warning
New product promotion falls short of expectations, overseas promotion falls short of expectations, recovery of consumption power falls short of expectations, sharp rise in raw materials, loss of new business or long recycling cycles, etc.