Plush pendants are no less than figurines! Morgan Stanley discusses POP MART: "Show-off" is a bigger market than "collecting."

While the market is still debating whether POP MART is overvalued, this trendy toy giant has quietly launched a new growth engine.

Morgan Stanley stated in its latest research report that the plush bag charms introduced by POP MART are leading a new trend and may open up a market larger than "collectibles."

Morgan Stanley analyst Dustin Wei's team noted in a report on March 9 that bag charms have given trendy toys new usage scenarios, transforming them from mere collectibles lying quietly in display cases into accessories that fashionistas use to express their personalities. More importantly, this "show-off" attribute has strong viral potential, helping POP MART attract more new customers and expand its Total Addressable Market (TAM).

"IP-Product" Flywheel Accelerates

Morgan Stanley analysts believe that bag charms are a key catalyst driving demand growth for POP MART. These small charms provide "fashion practicality" to blind box products, thereby expanding the potential market.

Analysts stated that bag charms are easier to spread and can attract new customers. Through user profiling analysis, 70%-75% of POP MART's users are female, and the popularity of bag charms is expected to make plush toys' sales share comparable to traditional figurines.

Third-party statistics show that the global plush toy market size has grown from 63.93 billion yuan in 2020 to 77.697 billion yuan in 2024, with a compound annual growth rate of 9.2%. The Chinese market is particularly notable: the plush/doll market size is expected to reach 4.24 billion yuan in 2024 and surpass 7.723 billion yuan in 2025. In the Chinese plush toy market, adult consumers account for over 70%, and 64% of buyers explicitly state that their core demand is to "alleviate feelings of loneliness."

Morgan Stanley also stated that POP MART's "IP-Product" flywheel is still spinning rapidly. This means that the company not only has a strong IP lineup but also possesses the ability to convert IP into best-selling products. Analysts expect that POP MART's plush/bag charm products will continue to grow rapidly and further enhance the visibility of its top IPs.

An interesting phenomenon is that product shortages are no longer limited to just the Labubu IP. New series such as Nezha, Mickey Mouse family, One Piece, and Barbie have quickly sold out upon release. This indicates that POP MART, as a brand, has generated a strong halo effect on consumers.

This halo effect will attract more resources from partners, including artists, large IP owners, landlords, e-commerce platforms, and social media platforms. This undoubtedly lays a solid foundation for POP MART's continued growth

New Categories, New Markets: Accelerating Global Layout

In addition to plush bag pendants, POP MART is actively expanding into new categories. Analysts suggest that investors focus on Pop Blocks building toys. Although the growth rate of this category may be relatively slow, POP MART has high hopes for it, planning to launch more product forms by 2025 and expand into more overseas markets.

Global expansion is a key driving force behind POP MART's sustained growth. Research reports indicate that the Southeast Asian market will continue to maintain rapid growth, while the U.S. market will become a key growth area in the coming years. POP MART plans to increase the number of stores in the U.S. from 20 to over 40 by 2025 and expects good same-store sales growth in U.S. stores.

Additionally, POP MART is actively exploring new businesses, including Pop Blocks, Popop (jewelry), desserts, fashion (Hirono), mini-movies, and Pop Land. Although these new businesses may not contribute much revenue by 2025, achieving initial success will help support POP MART's valuation.

Continued Global Market Expansion

Morgan Stanley holds an optimistic view on POP MART's financial prospects. They expect POP MART's sales to double in 2024, with fourth-quarter year-on-year growth potentially reaching 135%. In 2025, sales are expected to continue growing by 47%, with the Chinese market growing by 27% and overseas markets growing by 77%.

Even more noteworthy is the profit growth. Morgan Stanley predicts that POP MART's adjusted net profit will grow by 52% in 2024, reaching approximately 3.2 billion yuan, and will further increase to about 4.8 billion yuan in 2025. The adjusted net profit margin is expected to approach the peak level of 2019 (27.9%).

It is worth mentioning that POP MART's store efficiency in China has already surpassed that of 2019, while the unit economics in overseas markets are far superior to those in China. This means that with the expansion of the global market, POP MART's net profit margin could reach new highs.

However, Morgan Stanley also warns investors to be cautious of potential "profit-taking" risks. After experiencing a stock price increase of up to 343% in 2024, market expectations for POP MART are already very high.

Furthermore, POP MART seems to lean towards conservative performance guidance, which may disappoint some investors. For example, in 2024, the company's guidance for sales growth is set at 30% and 60%+, but the actual growth rate ultimately reached 100%