"LEGO-ization" – POP MART's "Bigger" Narrative

With the explosive popularity of the co-branded products with "Ne Zha 2," POP MART's stock price has once again reached new heights. Over the past month, POP MART's Hong Kong stock has risen by more than 26%, strongly returning to the peak levels of 2021 and setting a new historical high.

HSBC believes that driven by its IP and globalization strategy, POP MART still has vast growth potential, and its growth prospects can be compared to LEGO. The analyst team led by Lina Yan in a recent report pointed out that LEGO is an excellent benchmark for simulating POP MART's growth, as both have highly similar growth trajectories:

(1) Both companies have experienced downturns; (2) Both have transformed their businesses under young leadership; (3) They both have a successful formula for IP trendy toys: globalization, direct-to-consumer (D2C) sales model, and a strong IP management system.

HSBC believes that POP MART's approach to creating trendy IP toys is strikingly similar to LEGO's: incubating and managing IP through internal design and external licensing, while successfully attracting a global fan base by collaborating with globally recognized IPs to develop themed products.

The report notes that although LEGO has been around for nearly a century, its sales continue to grow significantly (approaching USD 10 billion in 2023, with a compound annual growth rate of 14% from 2019 to 2023). HSBC expects that from 2024 to 2026, POP MART's net profit will grow at a compound annual growth rate of 32%, with a revenue compound annual growth rate of 30%, of which 70% of the growth will come from overseas markets.

IP + Globalization Strategy

Since its establishment in 2010, POP MART has rapidly gained popularity through its "blind box" model, with its core competitiveness lying in its strong IP management capabilities.

The company has incubated numerous popular IPs such as "Molly," "The Monsters," "Skullpanda," and "Dimoo" through collaborations with artists, an internal design team, and IP licensing. These IPs not only dominate the Chinese market but have also won a large fan base globally.

Taking "Molly" as an example, since its launch in 2016, this IP has been updated to the 47th generation of products, with revenue growth of 90% year-on-year in the first half of 2024. Meanwhile, another popular IP of POP MART, "The Monsters," saw a year-on-year revenue growth of 292% in the first half of 2024, becoming an important engine for the company's growth.

It is worth noting that its IP strategy is not limited to product sales but also achieves diversified monetization through IP licensing, theme parks, games, and other forms. Additionally, POP MART's globalization efforts are accelerating, with operations in over 30 countries and regions, including key markets such as the United States, Canada, Southeast Asia, and Europe In addition to its strong IP strategy, POP MART is one of the few companies in China that has successfully pushed local brands into the global market. A HSBC report pointed out that POP MART's IP trendy toys have now attracted a global fan base—overseas sales are expected to grow nearly fivefold year-on-year in 2024, accounting for 40% of total sales.

Looking ahead, HSBC bluntly stated that the upper limit of POP MART's globalization is still very high.

For reference, POP MART achieved a net profit of USD 155 million in 2023 through nine key proprietary IPs. In the same year, Sanrio primarily achieved a similar level of net profit mainly through the Japanese IP "Hello Kitty and Friends," which has become a globally popular IP. Another reference point is LEGO, whose overseas market sales accounted for over 60% in 2023.

HSBC expects that by 2026, POP MART's overseas sales will grow from USD 700 million in 2024 to USD 1.6 billion, accounting for more than half of its total sales.

Performance May Have Greater Imagination Space

Due to the great success of the IP + globalization strategy, POP MART has delivered impressive performance.

In 2024, the company expects to achieve revenue of RMB 12.45 billion, a year-on-year increase of 97.6%; net profit is expected to reach RMB 2.88 billion, a year-on-year increase of 263%.

HSBC predicts that from 2024 to 2026, POP MART's compound annual growth rate (CAGR) for revenue and net profit will reach 30% and 32%, respectively. This growth is mainly attributed to strong performance in overseas markets, with overseas revenue contribution expected to exceed 50% by 2026.

Based on the above reasons, HSBC has given POP MART a "Buy" rating, with a target price of up to HKD 127.65, about 15% higher than last Friday's closing price. HSBC's valuation scenario shows that in an optimistic case, POP MART has even greater upside potential