Pop Mart International Group Limited (Pop Mart) in its recent 3Q24 business update reported 120-125% YoY growth in revenues, with internation market recording sales growth of an impressive 440-445% YoY and continued strong performance in China of 55-60% YoY. This growth was supported by Pop Mart’s aggressive global expansion, diversification into new product lines such as pop blocks and pop cards and plans for further innovation through the launch of an accessories store. Within China, the company reported sales growth of 30-35% YoY in retail sales, 20-25% YoY increase in roboshops, and 135-140% YoY increase in e-commerce.
Stock market reacted positively to this update, with share price increasing 18% next day and was up around 47% post update till date. Additionally, Nomura revised its target price to HK$75 from HK$54 on October 23, maintaining its “Buy” rating. Similarly, Jefferies increased its target price to HK$80.5 from HK$53 on the same day and further to HK$97 on November 25, maintaining its “Buy” rating.
Founded in 2010 and headquartered in Beijing, China, Pop Mart is a key player in the collectible toy industry, specialized in the design, development and sale of trendy collectible toys, particularly through its popular “blind box” concept. The company has rapidly evolved into an international brand with a robust presence across Asia, Europe, and North America. Its operations are divided into two main reporting geographies: Mainland China operations (70% of 1H24 results), and Hong Kong, Macao, Taiwan and Overseas operations (International, 30%). Within China, retail store contributed 46%, online sales 34%, roboshops 10% and the rest 10% from wholesale and others. In addition, within the international market retail store represent 66%, online sales 18%, roboshops 4% and the remaining 12% from wholesale and others.
As of 1H24, the company has extended its presence to over 30 countries and regions, operating more than 500 stores and 2,300 ROBOSHOP’s globally. Pop Mart employs around 5500 people and has been listed on the Hong Kong Stock Exchange since 2020. The company’s founder and CEO, Wang Ning, holds a significant stake of 44.1%, alongside institutional investors 7.9%.
Pop Mart’s creative IP strategy
Pop Mar’s IP operations and creative designs have been crucial to its development. By collaborating with high-potential pop artists and designers worldwide, the company have successfully created popular pop culture IP images through a strong IP operation system. The company implemented differentiated operations based on the characteristics of each IP, maintaining their popularity and achieving strong sales. In 1H24, revenue from MOLLY, THE MONSTERS, and SKULLPANDA reached CNY782mn, CNY627mn, and CNY575mn, respectively. “MOLLY” showed strong vitality with diverse commercialization operations, leading to a 90% YoY increase in sales, while “THE MONSTERS” vibrant and 3D personalities, enhanced by diversified designs and product interactions, resulted in an impressive 292 YoY growth. Additionally, “SKULLPANDA” focused on fashion figure toys, achieving a 9% YoY increase by offering a diversified art and collection experience.
Furthermore, in-house IP originals studio, PDC (Pop Design Centre), achieved remarkable success in 1H24. Hirono’s unique design language resonated deeply with fans, creating a spiritual sanctuary for many. Pop Mart established Hirono IP lifestyle pop-up stores in major cities, offering a variety of products including pop toys, clothing, household items, and more. The Bangkok pop-up store even featured and sold Hirono-themed easel paintings and sculptures, resulting in a 124% YoY revenue growth. In addition, Zsiga, a new IP launched in 2022, saw a 170% YoY revenue increase due to its stubborn and pure design expression.
Expansion strategies anchor continued success
Pop Mart has delivered exceptional performance over the last three years, registering a revenue CAGR of 36%, reaching CNY6.3bn in 2023 (ended December 2023). However, operating profit grew at a lesser rate than revenues, clocked a CAGR of 23%, reaching CNY1.5bn. Lower operating profit growth was due to higher SG&A, which increased to 43% of sales in 2023 from 34% in 2020. Consequently, margins contracted by around 11% over the last three-years, reaching 19.5%. Despites contraction in margins, company generated positive FCFs and recorded the highest ever FCF of CNY1.5bn in 2023, increasing threefold during the same period. Consequently, the cash balance increased to CNY6.0bn in 2023 from CNY5.7bn in 2020. However, total debt gradually increased over the period, rising from CNY292m at the end of 2020 to CNY793m at the end of 2023 due to strategic investments focused on expanding market presence. Nevertheless, the debt-equity ratio remained at a healthy level of 0.1x.
Pop Mart’s valuation mirrors growth potential
Pop Mart’s share price has surged an impressive 350% in 2024. Despite this substantial run-up, it is currently trading at P/E ratio of 46x (based on 2025 estimates EPS of CNY1.93), compared to its three-year historical average of 43x and global peer average of 45x. On an EV/EBITDA basis, the company is currently trading at 28x (based on 2025 estimated EBITDA of CNY3.9bn), which aligns with the global peer average of 28x but is higher than its 3-year historical average of 19x. Although analysts have consistently revised their target price upward throughout the year, the current closing price of CNY94.35 exceeds the average target price of CNY85.67, indicating limited upward potential at this stage. However, analysts have significantly revised their FY25 & FY26 revenues and earnings upward over the last few quarters, indicating continued confidence in the company. Consensus estimates project sales to grow at CAGR of over 40%, reaching CNY19.1bn, by 2026, up from CNY6.3bn in 2023. EBITDA is expected to reach CNY6.6bn, with margins of 33-35%, a 2.5x jump from CNY1.9bn in 2023, while EPS is expected to reach CNY3.17, a threefold increase from CNY0.81 in 2023.
Overall, Pop Mart is a good investment case with a strong brand value, fundamentals and its IP strategy. However, recent surge in stock price provides limited opportunity in near-term. However, IP risks such as Theft, Patent Infringement due to the importance of proprietary designs, decline in consumer discretionary spending amid inflationary pressures and regulatory challenges in overseas markets can impact sales and margins.