New IP momentum is strong, with bottlenecks in supply rather than demand. Morgan Stanley: Don't miss the opportunity for a pullback in POP MART

Morgan Stanley's Latest Recommendation: Seize the Opportunity of POP MART's Pullback!

On August 2nd, according to Chasing Wind Trading Platform, Morgan Stanley's latest research report states that as investors worry about POP MART's momentum slowing after the Labubu craze, the performance of the new IP product line is strong, and frequent product shortages are not a sign of weak demand, but rather a reflection of supply bottlenecks.

At the same time, Morgan Stanley emphasizes that POP MART has recently made frequent innovative moves, expanding boundaries through brand collaborations and accelerating globalization, and that POP MART's valuation advantage is significant. Coupled with the vast global IP market space and low penetration rates, there is huge growth potential in the future.

Based on this observation, Morgan Stanley believes that the current stock price pullback provides a rare entry opportunity for investors, maintaining an "overweight" rating and a target price of HKD 365, which still has over 48% upside potential compared to the current stock price of HKD 246.

Recently, POP MART has undergone continuous adjustments, with a cumulative decline of nearly 8% in July alone, although it has still surged over 170% year-to-date. The latest closing price was HKD 243.2 per share, having reached a record high of HKD 283.4 per share on June 12th.

Strong Performance of New IP Product Line, Supply Bottlenecks Highlight Value

Morgan Stanley analysts point out that although some investors believe POP MART's momentum has slowed after Labubu v3, the company continues to launch popular new products.

Data from Morgan Stanley's research indicates that many products launched in the past three months have quickly sold out in WeChat box machines and WeChat stores, indicating that sales of non-Labubu IPs are also constrained by supply limitations rather than insufficient demand.

The report states that in addition to the globally popular Labubu, emerging IPs like Crybaby and Twinkle Twinkle are also performing strongly and are expected to be the next shining top IPs, while traditional popular IPs like Molly, Skullpanda, Dimoo, and Hirono are also performing well.

Specifically, among the company's proprietary IP products, Twinkle Twinkle's "Bee Your Honey" figure (priced at RMB 199), several products from Crybaby (priced at RMB 79-199), and multiple product lines from the Molly series have all experienced shortages. Third-party licensed IP products such as SpongeBob SquarePants and Stitch are also in high demand.

Morgan Stanley emphasizes that this supply-demand imbalance is not a signal of weak demand, but rather a reflection of the attractiveness of the company's products.

Brand Collaborations Expand Boundaries, Accelerating Globalization

The report details POP MART's recent innovative initiatives, including cross-industry collaborations with well-known brands:

Collaborating with Godiva to design Labubu ice cream spoons, launching a special edition Dimoo figure with Chopard that incorporates classic ice cube designs, designing Labubu pattern T-shirts with Uniqlo, and collaborating with famous singer Zhou Shen to design figure products In addition, the company has opened two official POP MART stores in Shanghai and Beijing, and introduced Twinkle Twinkle character performances in Pop Land, further developing other business segments.

In terms of global expansion, POP MART has opened its first store in Berlin, Germany, with local media reporting "queues stretching hundreds of meters"; a Skullpanda-themed store has been opened in Melbourne, Australia.

Morgan Stanley believes that these initiatives indicate that the company's IP and products are well-received by global consumers in key cities and are ready to capture consumer demand in all global markets.

Strong Financial Data, Clear Valuation Advantage

According to Morgan Stanley's financial forecasts, POP MART's expected revenue in 2025 is RMB 31.046 billion, a year-on-year increase of 138%; the expected revenue for 2026 is RMB 42.994 billion, a year-on-year increase of 38%.

In terms of adjusted net profit, the expectation for 2025 is RMB 9.821 billion, an increase of 205%; for 2026, it is RMB 13.965 billion, an increase of 42%.

Gross margin continues to improve, rising from 66.8% in 2024 to an expected 71.5% in 2025, and further increasing to 72.5% in 2026. Operating profit margin also significantly rises from 31.5% in 2024 to an expected 42.0% in 2025.

The research report points out that the expected price-to-earnings ratio for 2025 is 31 times, dropping to 22 times in 2026, corresponding to approximately 210% and 45% profit growth. Morgan Stanley states that there are few large global high-growth stocks trading at a 22 times expected price-to-earnings ratio for 2026, highlighting POP MART's valuation advantage.

Huge Global IP Market Space, Low Penetration Rate

Morgan Stanley estimates that the global IP product market size is approximately USD 800 billion and continues to grow. In comparison, Disney's licensed IP product retail sales are about USD 423 billion, LEGO's are USD 18.2 billion, while POP MART's is only USD 1.8 billion in 2024, with a global market share of only 2.3%, indicating significant future growth potential.

The firm believes that POP MART is moving towards becoming a combination of "Bandai Namco + LEGO + Disney," and its growth story is still in the early stages.

"The company's strong IP product flywheel effect and efficient direct sales model are the core foundations for successful global expansion, with 90-95% of sales being direct-to-consumer, effectively obtaining real-time data to guide supply adjustments."

The pullback provides a good entry opportunity, maintaining an "overweight" rating

In summary, Morgan Stanley believes that the current pullback of POP MART provides a good entry opportunity, maintaining an "overweight" rating and a target price of HKD 365, corresponding to a projected price-to-earnings ratio of 46 times for 2025. Morgan Stanley has set three scenarios:

In the base case, the target price is 365 HKD (46 times the 2025 P/E ratio), in a bull market the target price is 482 HKD (50 times the 2025 P/E ratio), and in a bear market the target price is 161 HKD (22 times the 2025 P/E ratio).

This means that the current stock price of POP MART at HKD 246 corresponds to an upside potential of over 48% to the base case target price