Citigroup has issued a research report expressing the view that initiatives by BLOKS (00325) in new categories, IP diversification, adult-oriented products, and overseas expansion are expected to pave the way for sustainable growth from 2026 onwards. The firm has revised down its profit forecast for BLOKS, factoring in more conservative sales assumptions and a cautious margin trend during the expansion phase. It maintains a "Buy" rating on the stock but has lowered the target price from HK$103 to HK$88. Management has provided guidance targeting revenue growth of approximately 30% year-on-year over the coming years. By 2026, the company plans to launch more IPs and product lines globally, accelerate the development of new assembled vehicle categories, and improve the efficiency of its adult-oriented business. Channel inventory has returned to healthier levels following a sales slowdown. Citigroup anticipates steady revenue growth in BLOKS' domestic market, projecting an increase of over 20% year-on-year, while overseas markets are expected to grow at a faster pace, exceeding 100% year-on-year. Although gross margin is recovering, it may still be premature to predict a rebound in net profit margin.
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