According to the report released by CICC, Pop Mart (09992) is expected to "outperform the industry" as domestic sales are recovering well, Q2 continues to grow rapidly, and important overseas markets, such as Thailand, have achieved breakthroughs, with acceleration in growth for the year. The 2024/25 adjusted net profit forecast has been raised by 7%/7% to RMB 1.75/2.25 billion. Based on the adjustment of profit forecast and the smooth breakthrough of overseas markets and the continuous promotion of diversified businesses, the target price has been raised by 15% to HKD 46. CICC believes that the company's current business performance is outstanding: Q2 is expected to continue a rapid growth trend domestically, while localization work continues to be promoted during the rapid growth overseas. In addition, category expansion is orderly and lands safely, reiterating the long-term bullish prospects for the company.

CICC's main points are as follows:

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According to the company's official public account statistics, under the push of derivatives and new categories, the pace of pushing new products accelerated from April to May, with a total of 15 new blind box products, which were relatively stable year-on-year. MEGA/PU faces plush/other categories totaled 5/5/55, up 1/4/23 year-on-year, supporting Q2 performance growth and maintaining a relatively superior momentum. The new category expansion has also successfully landed. The first set of collection cards was launched on May 30, and the first building block (Labubu Forest Secret Base Series) was launched on June 13. The previously launched PU series sales remained high, and the successful category expansion is expected to further boost the vitality of IP and help develop user groups and consumer scenarios.

According to the company's official account statistics, the number of overseas stores opened in January to May exceeded 20, of which Southeast Asia accounted for about 35%, ranking first. In May, the new Banahill mountain scenic spot in Danang and the Crescent Mall in Ho Chi Minh City were opened. The bank expects that the landmark stores will continue to drive the average overseas store efficiency and rapidly expand regional market influence. After establishing a solid foundation in the East Asian market, the company is currently expanding into the Southeast Asian market and is also continuing to strengthen its strategic market layout in the United States. In terms of localization, the company develops IP based on local designer preferences for different markets (such as peach rebellion and Thai version of Labubu), and hires local teams to manage store opening and operation, laying a solid foundation for long-term growth.

The bank believes that following the increase in the proportion of new product categories, such as PU and building blocks, the substitution of outsourced products will be promoted, revenue proportion will increase, and production capacity in Vietnam and other places will be gradually invested, the company's gross margin is expected to maintain stability with a slight increase.

The company's "Dream Home" mobile game public beta test will be launched on June 27, and as of 6pm on June 17, the number of reservations surveyed by the bank has exceeded 3.9 million; The planning and preparation of Joyland Phase II is also underway. Regarding IP authorization, the company collaborated with Luckin Coffee and Anta in April and Vans in June. The bank continues to be optimistic about the company's diversified innovative businesses to help IP break through, continuously opening up new growth curves.

In 2023, the company's overall sales volume will be 18,000 kiloliters, a year-on-year increase of 28.10%, with significant growth. In terms of product structure, operating income of 4.01/12.88/0.06 billion yuan for products valued at RMB 100-300 billion, respectively.

The bank maintains its "outperform the industry" rating for Pop Mart (09992), considering the company's excellent performance in Q2 with rapid growth trajectory, which is expected to continue forwarding in the domestic market. In the meantime, the localization work is continuously promoted during the high-speed growth overseas, besides, the category expansion also lands safely and orderly, the bank reiterates its bullish view of the broad long-term growth prospects of the company.

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