Guosen Securities Co.,Ltd. has released a research report maintaining its "Outperform" rating on BLOKS. The firm notes that BLOKS is currently increasing investments in low-priced, customer-acquiring products to further expand its market, alongside higher mold costs for high-precision items. Consequently, the brokerage has revised its net profit attributable to shareholders for 2026-2027 down to RMB 832 million and RMB 1.059 billion, respectively (previous forecasts were RMB 1.138 billion and RMB 1.506 billion). A new forecast for 2028 has been added at RMB 1.3 billion, translating to P/E ratios of 20.6x, 16.2x, and 13.2x for those years. The "Outperform" rating is maintained.
The overall strong growth performance is largely attributed to the continuous diversification of the IP matrix, the advancement of a global market expansion strategy, and the successful expansion of new product categories like building block vehicles.
Key Insights from Guosen Securities Co.,Ltd.
In the first half of 2026, BLOKS achieved revenue of RMB 1.776 billion, a year-on-year increase of 32.7%. Net profit for the period was RMB 387 million, up 30.5%, while adjusted net profit (excluding the impact of share-based compensation) was RMB 401 million, a 25.1% increase. The company declared an interim dividend of HKD 0.3247 per share, representing a payout ratio of approximately 18%.
By product category, building block character toys generated revenue of RMB 1.585 billion, a 19.6% increase and accounting for 89.3% of total revenue, showing stable performance. Newly launched vehicles and dinosaur-themed toys in late 2025 and 2026 contributed RMB 186 million and RMB 59 million in revenue, respectively, accounting for 10.4% and 3.3% of total revenue, and delivering outstanding results. Furthermore, the company's customer base is aging up, with revenue from products for ages 16 and above surging 124% year-on-year, now comprising 25% of total revenue.
By distribution channel, offline distributor revenue grew 31.4%, accounting for 89.7% of total revenue. Online channels showed even stronger growth, generating RMB 181 million, a 68.1% year-on-year increase. Regionally, BLOKS continued to make strides in international markets, achieving revenue of RMB 366 million in the first half, a 228.5% year-on-year surge. Domestic revenue reached RMB 1.41 billion, a robust 14.9% increase.
Expanding IP Portfolio and Diversification Foundation
As of the end of the reporting period, BLOKS held 75 licensed IPs and 2 proprietary IPs, with 30 already commercialized. The share of revenue from the top six IPs decreased by 11.2 percentage points year-on-year to 77.6%, indicating a solid foundation for future IP diversification.
Margin Impact and Cost Optimization
Gross margin for the first half of 2026 was 44.29%, a decrease of 4.1 percentage points year-on-year. This was impacted by a higher proportion of sales from low-priced customer-acquisition products, rising upstream raw material costs, and a 64.3% increase in depreciation from higher mold usage. The selling and distribution expense ratio improved to 12.04%, a 1.17 percentage point optimization. The R&D expense ratio was 7.4%, a 2.22 percentage point improvement. The administrative expense ratio remained stable at 3.58%. Inventory turnover days were 73 days, down 2 days year-on-year. Cash and cash equivalents stood at RMB 978 million at the end of the first half.
Risks
Risks include slower-than-expected IP expansion, slower-than-expected product category expansion, and disappointing overseas sales performance.
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