The group strategy was effectively promoted, 2024H1 revenue performance maintained a high increase, and the “buy” rating was maintained

Bubble Mart 2024H1 achieved revenue of 4.56 billion yuan (+62.0% year over year, same below), net profit of 0.92 billion yuan (+93.3%) to mother, and adjusted net profit of 1.02 billion yuan (+90.1%) to mother. As a leading company in the trendy game industry, we are optimistic about Bubble Mart's continued increase in domestic market share and the accelerated development of overseas channels, mainly based on three aspects: (1) first-mover advantage to achieve IP monopoly and excellent supply chain empowerment to help smooth the whole process; (2) scenario-based design strategies further enrich the product matrix and effectively advance the IP group strategy; (3) excellent content operation and IP linkage to drive brand value improvement. We are optimistic that the company will maintain its leading position in the trendy game industry. The IP-centered group strategy will continue to advance and maintain the 2024-2026 profit forecast. The net profit for 2024-2026 is estimated to be 2.12/2.76/3.51 billion yuan, corresponding to EPS of 1.6/2.1/2.6 yuan. The current stock price corresponds to PE of 28.4/21.8/17.1 times, maintaining a “buy” rating.

Highlight 1: Efficient business model realizes IP monopoly, and supply chain empowerment helps smooth the entire link

As a pioneer in trendy gaming tracks, the company was the first to enter the blind box circuit. In terms of IP layout, the company has gathered a large number of outstanding IP creators through internal incubation and external contracts. Over the years of development, the IP matrix has been improving. In 2023, the number of IPs with sales of over 100 million yuan reached 10 (+4 compared to the previous year). At the same time, the company continued to host various trend exhibitions and themed exhibitions. The average Douyin search index in the past six months was 0.133 million, and the number of Xiaohongshu notes exceeded 1.96 million, all far surpassing companies in the same industry. On the supply chain side, the company continues to build a flexible supply chain for new materials, enabling the smooth flow of the entire link from IP design to terminal sales. In 2024, overseas factories in Vietnam have completed the first batch of deliveries, and the global supply chain system has been further expanded.

Highlight 2: Scenario-based product layout, multi-point flowering to create IP “groupings”

After years of development, the company has formed a diversified product matrix with blind box products, supplemented by products such as vinyl dolls and the MEGA Collection series. For the first time in 2023, blind box products accounted for less than 70% of revenue.

The company uses a scenario-based design strategy for product layout: (1) blind box products are piled up in the office to provide spiritual companionship in the work scene; (2) the MEGA Collection series lays out the home scene, which has both collectible and decorative value. (3) Sugar gum products accompany the street in the form of pendants or dolls, and outdoor “baby walking” has become a fashion trend. (4) Collect cards and building block products as a new experiment to further expand the product matrix. We are optimistic that the product layout, which will blossom a lot in the future, will help effectively advance the “grouping” of products with IP as the core, and form an IP universe unique to Bubble Mart.

Highlight 3: Content Operation Linkage IP to Drive Brand Value Enhancement

In terms of IP operation, the company launched Bubble Mart City Park in 2023, linked to the IP with the design concept of “group photo resort, spiritual paradise”, which achieved an excellent record of receiving nearly 0.1 million visitors in the first month of opening, and signed the “Bubble Mart City Park Phase II” cooperation project with Chaoyang Cultural Tourism Group on May 19, 2024; on June 27, 2024, Bubble Mart's first self-developed mobile game “Dream Home” was launched, reaching number one in the iOS free game list, and the second best overall simulation performance. + party Gameplay. Players can cordially interact with their favorite IPs and experience various ways to play together, such as fishing and farming. We are optimistic that the company will use its excellent content operation capabilities to effectively drive the increase in brand value through IP and linkage with cultural tourism and gaming projects.

Risk warning: Overseas expansion falls short of expectations, incubation of new IPs falls short of expectations, and upstream supply falls short of expectations.