The growth curve is becoming steeper! Morgan Stanley is optimistic about POP MART: after short-term profit-taking, it will reach new highs again

After POP MART announced its preliminary performance report for the first half of the year, Morgan Stanley stated that the performance exceeded expectations, with an increasingly steep growth curve. Considering that the stock price has already risen significantly this year, Morgan Stanley believes there may be profit-taking pressure in the short term, but it will reach new highs again.

On July 17, according to news from the Wind Trading Desk, Morgan Stanley released a performance interpretation report for POP MART for the first half of 2025, stating that sales and profits were 8% and 20% higher than Morgan Stanley's estimates, respectively.

According to a previous article from Jianwen, the preliminary performance report released by POP MART on July 15 showed that sales in the first half of the year increased by no less than 200% year-on-year, and adjusted net profit surged by no less than 350% year-on-year.

Morgan Stanley stated in the report that the growth curve of POP MART's performance is showing an accelerated steep trend, with Greater China and the Asia-Pacific region being key markets that exceeded expectations. Based on strong performance, Morgan Stanley significantly raised its sales and net profit forecasts.

Regarding stock price trends, Morgan Stanley expects the stock price to reach new highs in the short term, followed by potential profit-taking behavior from momentum investors. However, Morgan Stanley raised the target price for POP MART from HKD 302 by 21% to HKD 365, believing that based on the revised estimates, POP MART still has "attractive upside potential."

Performance: Growth Curve Becomes Steeper

Specific data estimated by Morgan Stanley shows:

Sales in the first half reached RMB 13.7 billion, a year-on-year increase of 200%;

Gross margin was 70.9%, an increase of 6.8 percentage points year-on-year;

Selling and administrative expense ratio was 29.8%, a decrease of 9.9 percentage points year-on-year;

Operating profit margin reached 41.1%, a significant increase of 16.7 percentage points year-on-year;

Net profit was RMB 4.375 billion, a year-on-year increase of 375%.

From a regional performance perspective, Morgan Stanley estimates that growth in various markets in the first half showed significant differentiation:

Greater China grew by about 125%, North America surged by about 1400%, other Asia-Pacific regions grew by about 200%, and Europe and other markets grew by about 750%.

In terms of gross margin, Morgan Stanley estimates that the gross margin for the Chinese market is 66%, while the overseas market reaches 75.5%. With the continued strong growth of the North American market, which has a higher gross margin (about 80%), the overall gross margin is expected to continue to improve.

Morgan Stanley stated that the company's net profit margin reached 32%, about 4 percentage points higher than expected, mainly due to higher gross margins in overseas markets and improved operational efficiency.

Based on strong performance, Morgan Stanley raised its sales forecasts for 2025-2027 by 19%, 22%, and 23%, respectively, and raised its net profit forecasts by 32-34%. It is expected that sales will grow by 140% and net profit will grow by 210% in 2025

Morgan Stanley pointed out that such exponential growth is likely to be achieved in the context of supply shortages, highlighting the strong demand for the company's products in the market.

Morgan Stanley has also raised its gross margin forecast by 2.6-2.7 percentage points, predicting 71.5%, 72.5%, and 73.0% for 2025-2027, mainly due to the company's price increase for old products in the U.S. market in June.

Stock Price Outlook: New Highs After Profit-Taking

Regarding stock price trends, Morgan Stanley expects that the stock price will reach new highs in the short term, but may subsequently experience profit-taking behavior from momentum investors, as these investors typically exit when sales growth peaks.

Morgan Stanley estimates that sales growth in the third quarter will slow to 150-160% (compared to 230% in the second quarter), mainly due to the significantly increased base in the Asia-Pacific and Chinese markets.

Morgan Stanley emphasized that some very optimistic investors may believe that the performance in the first half of the year merely met expectations.

According to previous reports from Chasing Wind Trading Desk, Goldman Sachs stated in its latest research report that although the performance exceeded the consensus of sell-side analysts and the market, it basically met the high expectations of buy-side institutions. However, Morgan Stanley believes that this adjustment window provides a good opportunity for long-term investors to increase their positions, as POP MART's long-term potential in the global market remains enormous.

Based on the revised earnings forecast, Morgan Stanley raised its target price from HKD 302 by 21% to HKD 365, with a bullish scenario of HKD 482 and a bearish scenario of HKD 161. Based on the revised estimates, Morgan Stanley believes that POP MART still has attractive upside potential.

Morgan Stanley also lowered the target price-to-earnings ratio for 2025 from 51 times to 46 times (implying a decrease in the target price-to-earnings ratio for 2026 from 35 times to 32 times), with a target price implying a price-to-earnings growth ratio (PEG) of 1.4 times. Morgan Stanley believes that this is reasonable for a high-growth consumer goods company with global expansion potential.

POP MART's stock price has risen 170% this year, far exceeding the 25% increase of the Hang Seng China Enterprises Index, but Morgan Stanley believes that the company's growth story is still in its early stages, with significant room for improvement compared to global peers.