Recently, POP MART has faced market concerns regarding the sustainability of its growth due to fluctuations in some high-frequency data and discussions about secondary market prices. Huatai Securities pointed out in a January 20th report that current market divergences are creating a window of valuation attractiveness, asserting that the market's pessimistic expectations have overlooked at least three critical expectation gaps. First, the decline in overseas online data is overestimated, as the omnichannel performance actually remains resilient. Second, a new IP echelon has already taken shape, with Labubu's proportion decreasing to 30-50% in multiple markets. Finally, POP MART's strategic shift towards becoming an IP ecosystem company (involving film and TV content, park expansions, etc.) has not been priced in. When the Hong Kong stock market opened on Tuesday, January 20th, POP MART's stock price surged by 10%, reaching HK$198.60. The previous day, the company conducted a substantial buyback of 1.4 million shares for HK$251 million, using real money to convey confidence to the market.
The first expectation gap: The resilience of overseas markets is being masked by singular online data. Huatai Securities believes the market's anxiety largely stems from tracking sales on online channels like TikTok Shop. For instance, data shows its US TikTok Shop sales decreased by approximately 10% quarter-over-quarter in Q4. However, this observation misses the omnichannel dynamics. In Q3, severe stockouts in North American offline stores led to an abnormally high proportion of online sales, potentially reaching 60-70%. Entering Q4, with improved production capacity, store supply has largely recovered, and sales are shifting back from online to physical stores. Consequently, despite the decline in online figures, when combined with the recovery in offline stores (a net increase of about 12 stores in North America in Q4), its total omnichannel sales are likely flat or even slightly increased compared to Q3. Maintaining such a sequential trend in a non-blockbuster season itself indicates that the underlying demand is more solid than perceived.
The situation in Southeast Asia is similar. In Thailand, TikTok sales indeed faced pressure, but concurrently, the company doubled its number of offline stores. The migration of sales from online to larger, better-located flagship stores is a result of optimized channel structure, not a dissipation of popularity. Equating online data with overall performance misjudges the true engine of growth.
The secondary market prices, which the market eagerly discusses, are not considered a reliable indicator of IP heat in the report. The high premium previously seen for the Labubu 3.0 series was primarily due to a short-term supply-demand mismatch caused by production bottlenecks. When the company's monthly production capacity for plush toys increased from 300,000 units at the start of the year to over 30 million units by August, the premium's decline was a natural process of the market moving towards healthier supply and demand.
POP MART's core business strategy is "art democratization," meaning making products more accessible through ample supply, which is inherently in conflict with maintaining high premiums in the secondary market. Fixating on the fluctuations of secondary market prices might actually obscure the understanding of the company's long-term strategy. The second expectation gap: A new IP echelon has already formed; it's not just about Labubu. Another common misconception is that POP MART over-relies on the single IP, Labubu. However, internal data shows that the diversification of its IP matrix is progressing faster than external perceptions. In the domestic Douyin official flagship store, Labubu's sales proportion had decreased to around 30% in Q4, while the share of newer IPs like Skullpanda and Crybaby is rising rapidly.
This trend is even more pronounced in the Southeast Asian market, where channel development is more mature. On Indonesia's TikTok bestseller list, Labubu's proportion has fallen below 40%, while the combined share of the two new IPs, Skullpanda and Crybaby, can exceed 50%. (In Indonesia, Labubu's online sales share is already below 40%) In Europe and the US, Labubu still accounts for a high proportion of current online sales, but the report attributes this to the stage of channel development. (Labubu's share remains high in UK online sales) When the physical store network is not yet well-established, consumers shopping online tend to "search" for known hit products, whereas "experiencing" and "getting into" a new IP is more reliant on offline scenarios. As store expansion continues in Europe and America, the potential of new IPs is expected to be unleashed. The company's initiation of an artist recruitment drive in Europe last September precisely aims to cultivate the next "Crybaby" that resonates with local consumers. The third expectation gap: The transition from a toy seller to an IP ecosystem company has not been priced in. Finally, Huatai Securities points out that the current market is accustomed to valuing POP MART using a toy company model, closely monitoring monthly sales data, while overlooking its crucial strategic evolution into a content-driven IP group. POP MART's content plans have entered a substantive phase. The animated series "LABUBU & FRIENDS" is currently in production. More notably, Sony Pictures has acquired the film adaptation rights for Labubu and has enlisted Paul King, director of "Paddington," to helm the project. Referencing the experience of Sanrio (parent company of Hello Kitty), which successfully revitalized its classic IP and boosted sales of its diverse character series after 2020 by embracing content platforms like Netflix and YouTube.
The report indicates that content is poised to become a core lever for POP MART to break through demographic circles and extend IP lifecycles in the future. Simultaneously, the upgrade and expansion of the Beijing park, along with experiments in new businesses like desserts and accessories, are building a more comprehensive ecosystem with deeper emotional connections to fans. The investment required for these initiatives and their potential value have not been reflected in the current stock price. Analysts assign the company a 27x forward P/E ratio for 2026, with the core logic lying in the scarcity of its business model. The report emphasizes that POP MART is almost uniquely positioned globally as a company centered on an "artist IP incubation and operation platform." It has built a complete closed-loop system encompassing IP discovery, product design, supply chain management, omnichannel sales, and fan community operations. Huatai Securities is optimistic that under its globalization and IP group strategy, POP MART will fully leverage the exclusive advantages of its business model to drive sustained rapid earnings growth and advance towards becoming a world-leading trendy toy IP platform.
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