CICC has released a research report stating that, considering BLOKS's (00325) underperformance of some new products relative to expectations, it has lowered its adjusted net profit forecasts for 2025/2026 by 19%/17% to 650 million/870 million yuan. The report also introduces, for the first time, a 2027 adjusted net profit forecast of 1.07 billion yuan. The current share price implies 2026/2027 adjusted P/E ratios of 18x/15x. The Outperform industry rating is maintained. However, based on the adjusted profit forecasts and changes in market risk appetite, the target price is reduced by 26% to HK$100. This new target corresponds to 2026/2027 adjusted P/E multiples of 26x/20x, suggesting approximately 40% upside potential from the current level. The key viewpoints from CICC are as follows:
The firm recently organized a company visit and held in-depth discussions with management regarding strategic reviews and outlooks, performance of new product categories, and overseas expansion progress. CICC believes that the company is using a strategy of launching a large number of new products in 2025 for market testing. For 2026, the company plans to moderately focus on trending categories, which is expected to enhance the certainty of achieving its performance targets. Subsequent focus should be on the performance of new categories and overseas operations.
For 2026, the company intends to concentrate on key categories, aiming to improve quality and efficiency. Reflecting on 2025, the company explored its business boundaries around its strategy targeting all demographics, all price points, and globalization. The product line for the下沉市场 (lower-tier markets) at the 9.9 yuan price point performed relatively well. However, certain categories, such as those targeting female consumers, did not meet internal targets, which somewhat dispersed resources and impacted profitability. Looking ahead to 2026, the company's focus is shifting towards concentration and certainty: on the product side, it plans to maintain its new product launch pace while improving the success rate of individual items; financially, as the team structure matures and headcount stabilizes, operating leverage effects are expected to materialize. Furthermore, CICC anticipates that by controlling the proportion of low-margin, traffic-acquisition products and leveraging economies of scale to amortize costs like mold development, the company's gross profit margin will stabilize and recover.
The construction vehicle category has been successfully cultivated and is expected to drive future growth. The company has established construction vehicles as one of its two core strategic categories alongside construction figures. It plans to maintain a monthly launch cadence for this category in 2026, and its gross margin level is also making a positive contribution. Regarding construction figures, core IP operations continue to deepen. The Transformers series has achieved effective coverage across all price segments from 9.9 yuan to 249 yuan, while the Ultraman series continues to stimulate demand through new SKU specifications. Additionally, with the advancement of the all-demographics strategy, the proportion of products targeting adults is expected to increase sequentially in the second half of 2025.
Overseas performance is strong, with the American market leading growth. In the second half of 2025, the company's overseas business continued its high growth trajectory, expected to double sequentially. Benefiting from its pricing strategy and product strength, the company maintained a price advantage despite the impact of North American tariffs, successfully entering mainstream key account channels like Walmart. Future order volumes are expected to grow steadily. The company anticipates that North America will become its largest single overseas market in 2026. In Southeast Asia, it will increase its presence in key markets such as Thailand and Vietnam, supported by logistics and warehousing infrastructure. Furthermore, the European team is currently being built out, and CICC believes there remains significant potential for future expansion.
Risk warnings include intensifying competition, loss of licensed IPs, and new products underperforming expectations.
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