To The Moon

1. Introduction

$POP MART(09992)$ Pop Mart International Group Ltd (HKG:9992) has recently experienced a substantial surge, with its stock price climbing over 20% on October 23, 2024. This spike follows impressive third-quarter performance, driven by strong international growth, particularly in Southeast Asia and other Asian markets​.

2. Business Overview

Founded in 2019, Pop Mart is a leader in the collectible toy industry, focusing on proprietary intellectual property (IP). Its business spans IP development, production, retail, and e-commerce platforms. Pop Mart is renowned for blind boxes, action figures, and pop-culture collaborations with artists and designers. With a diversified retail strategy involving both physical stores and roboshops, the company also leverages online platforms such as Tmall and Douyin for e-commerce sales​.

3. Financial Health

2024 Interim Results (First Half):

• Revenue: RMB 4.56 billion (+62% YoY)

• Gross Profit: RMB 2.92 billion (gross margin of 64%)

• Net Profit: RMB 921 million (+93% YoY) Note: Non-IFRS adjusted net profit reached RMB 1.02 billion​.

Third-Quarter Update:

• Q3 2024 Revenue Growth: +120-125% YoYChina Revenue: +55-60% YoYOverseas Revenue: +440-445% YoYE-commerce platform growth highlights include a 155-160% increase on Tmall.

4. Key Financial Ratios

• P/E Ratio: 47.54

• P/B Ratio: 11.02

• Gross Margin: 64.0% (H1 2024)

• Net Profit Margin: 21.2% (H1 2024)

• Quick Ratio: 3.77

These indicators show strong profitability and liquidity, but the premium valuation reflects high market expectations​.

5. Competitive Position

Pop Mart differentiates itself through proprietary IPs, collaborations, and exclusive products. Its market leadership in the blind box segment, coupled with robust e-commerce operations, has positioned the brand favourably against competitors. With over 100 stores globally, Pop Mart is expanding aggressively in Southeast Asia, North America, and Europe​.

6. Market Potential

The global toy industry is rapidly evolving, with growing consumer interest in collectibles and experiential retail. Pop Mart is well-positioned to benefit from these trends, with significant room for expansion in international markets. Its focus on digital platforms and localized operations will further drive growth​.

7. Investment Moat

Pop Mart’s moat lies in its proprietary IP development and brand loyalty. By continuously creating new product lines and leveraging collaborations with artists, the company strengthens its hold on the collectible toy market. Its seamless integration across physical and online channels also ensures consistent consumer engagement​.

8. Risks

• Economic Risks: Fluctuations in consumer spending, especially in China.

• Currency Risks: Impact of foreign exchange rates on international operations.

• Intense Competition: Both from global toy companies and regional players.

• High Valuation Risks: Premium valuation could result in volatility if growth expectations are unmet​.

9. Valuation

Using the current P/E ratio of 47.54 and P/B ratio of 11.02, Pop Mart appears richly valued, reflecting the market’s optimism for continued high growth. A DCF analysis would depend heavily on sustaining recent international growth trends. Despite the high multiples, Pop Mart’s strong revenue trajectory and expansion into new markets offer potential for future gains​.

10. Conclusion

Pop Mart’s financial performance and international growth make it an attractive investment, though the premium valuation poses risks. For long-term investors with a higher risk tolerance, the stock could present a buy opportunity, leveraging its global expansion and IP-driven strategy. However, cautious investors might consider a hold until more clarity on global economic conditions and competitive pressures emerges.