Pop Mart: Great Success on Global Business! Is Pop Mart on a "crazy ride"？

$POP MART(09992.HK) Pop Mart: Going Global with Great Success! Pop Mart is on a "crazy ride"

On the afternoon of March 26, Beijing time, Pop Mart (9992.HK) released its H2 2024 performance, which was overall quite impressive. The overseas business continued its high growth momentum from Q3, while domestic offline stores accelerated compared to Q3. The gross profit margin reached a historical high due to an improved product mix and an increased proportion of high-margin overseas business. The expenditure was also relatively restrained, resulting in profits exceeding market expectations.

Key points are as follows:

1. Overseas growth continues, domestic expectations diverge more: Since Pop Mart had already reported explosive Q3 overseas performance (440%-445%) last October, the overall overseas growth rate for the second half of the year (438%) indicates a slight slowdown in Q4 compared to Q3, but it still shows that the company maintained its high growth momentum overseas.

However, what truly exceeded expectations this time was the performance of domestic offline stores, which accelerated again in Q4 compared to Q3 (55%-60%) despite a generally sluggish consumption environment. The high growth rate for the second half of the year reached 70%. After the Q3 performance announcement, the market generally predicted Q4 based on Q3's growth rate, thus from the perspective of expectation divergence, domestic offline performance exceeded expectations even more.

2. Same-store revenue accelerated: In terms of store opening pace, both overseas and domestic expansions were relatively stable compared to the same period last year. In the second half of the year, 27 new stores were opened domestically and 38 overseas, with overseas store expansion occurring at a faster rate.

In overseas regions, Southeast Asia mainly opened stores through different formats (themed stores, pop-up stores), while in the European and American markets, the focus was on opening stores in core business districts to capture high-potential locations and build brand image. Domestic new stores were more concentrated in second-tier and lower-tier markets.

In terms of same-store revenue, the support from popular IPs combined with diversified monetization (plush toys, building blocks, jewelry, etc.) led to an acceleration in both domestic and overseas regions compared to the first half of the year, with overseas same-store revenue exceeding that of domestic stores by more than three times, indicating that the potential for overseas store openings is vast.

3. The Monsters series shines brightly: In terms of the contribution of various IPs to performance, the artist IP (the company's exclusive IP) increased its share from 81% in the first half to 88%. Specifically, Molly, as Pop Mart's initial classic IP, maintains strong vitality through a continuously updated and diversified product mix, with its share remaining stable. In the second half of the year, due to the sustained popularity of Labubu, The Monsters series experienced explosive growth, surpassing Molly to become the company's largest IP, accounting for nearly 30%.

Other core IPs, including SKULLPANDA and DIMMO, although their growth rates have slowed, have little impact on overall performance. This essentially reflects the company's IP creation and operation mechanism maturing, with the declining popularity of a single IP gradually having less impact on the company. **

4. The proportion of plush toys has significantly increased; from the perspective of product categories, the proportion of figurines represented by blind boxes continues to decline, replaced by explosive growth in plush toy series with higher ASP, increasing from less than 10% in the first half of the year to 30%.

This also indicates that excellent IP design is not limited to the type of product performance; the company can maximize the value of a single IP by continuously expanding product categories.

5. Explosive growth in overseas online sales. From the channel perspective, the biggest highlight is that with the deepening of the DTC model, the company entered more overseas social platforms in the second half of the year and increased its live-streaming efforts on major social platforms, interacting with consumers through high-quality content ecosystem. In the second half of the year, overseas online revenue surged from 100 million to 1.2 billion, an increase of over 10 times.

6. Gross margin reaches a new high. On one hand, the proportion of high-margin overseas business continues to increase (overseas gross margin is about 10% higher than domestic), combined with product structure optimization, the company's gross margin reached a new high of 68.3% in the second half of the year. Additionally, the company indicated in the conference call that the proportion of overseas business may exceed 50% by 2025, which means the overall gross margin is expected to continue to rise.

7. The expense ratio continues to decline. In terms of expense ratio, the company increased the proportion of low-cost online marketing in the second half of the year and continuously optimized personnel structure and rental costs, resulting in both sales and management expense ratios declining, with core operating profit significantly exceeding expectations.

8. Overview of detailed financial data:

Dolphin Research's overall view:

From the data in this financial report, there is no doubt that Pop Mart is still in a high-growth phase. In Dolphin Research's view, for companies primarily focused on offline store models, the two core operational indicators are the number of stores and the efficiency of individual stores.

The growth explosion in the second half of 2024 is not driven by the number of stores opened but by the efficiency of store space. Since both overseas and domestic markets are in a rapid growth phase, there is still plenty of room for store openings.

The dual 50 targets for 2025—over 50% revenue growth and overseas proportion exceeding 50%—mean that both the overseas and Chinese markets will continue to experience explosive growth driven by multi-category expansion and market penetration.

In terms of profit elasticity, whether it is the rapid growth overseas or the increase in the proportion of high ASP products, the higher gross margin will lead to greater profit elasticity for Pop Mart.

Additionally, based on information from the conference call, the revenue in North America for a single Q1 (around 700 million) is already close to last year's total performance. Combined with channel research information, the company plans to accelerate store openings in North America in 2025, aiming to have at least 40 stores by the end of the year (currently only 20 stores in North America). From this trend, Dolphin Research believes that North America is likely to become the "second Southeast Asian market." Finally, in terms of valuation levels, although the company has experienced a surge in the early stage, based on the company's guidance during the conference call—sales growth of no less than 50% in 2025, Dolphin Research estimates that the corresponding valuation for 2025 is only 35x, which is not expensive compared to Dolphin Research's estimated profit growth center of over 30% in the next five years. Additionally, as Pop Mart is undoubtedly the leader in the IP space, enjoying a certain degree of valuation premium is not excessive.

The following is a detailed interpretation of the financial report:

I. High revenue growth, overseas business still in an explosive phase

In the second half of the year, the company achieved total revenue of 8.48 billion yuan, a year-on-year increase of 131.2%, exceeding market expectations (7.67 billion yuan), and compared to the company's previously disclosed Q3 year-on-year growth of 120%-125%, Q4 accelerated sequentially, indicating that Pop Mart's "god-making movement" is still ongoing.

Breaking it down, the overseas business, which is of most concern to investors, refers to the explosive growth in Q3 (440%-445%), although Q4 saw a slight deceleration compared to Q3, it still indicates that the company has maintained the high growth momentum in overseas markets, with the overseas business accounting for 43.8% by the end of 2024.

By region, Southeast Asia remains the fastest-growing area in the second half of the year, continuing to enjoy the dividends of the IP blue ocean phase through various store types (theme stores, pop-up stores), with overseas revenue accounting for 50%.

What caught Dolphin Research's attention is that in the second half of the year, Pop Mart also entered a rapid growth phase in the North American market, with total revenue tripling compared to the first half of the year without rapid store openings, and the proportion increased from 10.5% in the same period last year to 14.7%.

In the domestic market, total revenue in the second half of the year was 4.18 billion yuan, a year-on-year increase of 60%, accelerating compared to the first half of the year. Among them, offline retail stores achieved revenue of 2.36 billion yuan, a year-on-year increase of 60%, as the market generally predicted Q4 based on Q3's growth rate (Q3 offline retail only grew by 30%-35% year-on-year), thus offline retail significantly exceeded market expectations.

II. Same-store revenue growth as the core driver

From the perspective of store opening pace, since the company's offline stores are almost all direct-operated, a lot of preparation work is needed before opening, and decision-making is relatively cautious, both overseas and domestically are relatively stable compared to the same period last year. In the second half of the year, 27 new stores were opened domestically and 38 overseas, with overseas store expansion occurring at a faster pace In overseas regions, East Asia and Southeast Asia mainly opened themed stores (Crybaby, K-pop) based on local characteristics and IP brands for encrypted store openings, while in the European and American markets, the focus is on opening stores in core business districts to seize high-potential locations and build brand image. In contrast, new stores in China are more concentrated in second-tier and lower-tier sinking markets.

The real driver of performance growth is still the single-store revenue, enhanced by popular IPs and diversified monetization of IPs (plush toys, building blocks, jewelry, etc.). In the second half of the year, the store efficiency in both domestic and overseas regions accelerated compared to the first half, with overseas single-store revenue exceeding domestic by more than three times, further indicating that the space for opening stores overseas is vast.

Moreover, the high base effect of stores in China has not caused a diversion; the store efficiency continues to climb, indicating that the ceiling for opening stores domestically is still far from being reached.

III. LABUBU sells explosively, with popular IPs taking turns to shine

From the contribution of various IPs to performance, the share of artist IPs (the company's exclusive IP) has increased from 81% in the first half to 88%, reaching a historic high, indicating that the company places greater emphasis on the value of original IPs.

Specifically, Molly, as the initial classic IP of Pop Mart, maintains strong vitality through a continuously updated and diversified product mix, with a stable share. In the second half of the year, due to the sustained popularity of Labubu, the The monsters series experienced explosive growth, surpassing Molly to become the company's largest IP, accounting for nearly 30%.

In addition to The Monsters, Crybaby has also become the fastest-growing new IP for Pop Mart, contributing revenue of 810 million yuan in the second half, a year-on-year increase of more than 15 times.

Other core IPs, including SKULLPANDA and DIMMO, have seen a slowdown in growth, but their impact on overall performance is minimal. This essentially reflects the continuous maturation of the company's IP creation and operation mechanism, with the declining popularity of a single IP gradually having less impact on the company.

IV. IP Diversification Monetization is Still Evolving

From the perspective of product categories, the proportion of figurines represented by blind boxes continues to decline, replaced by explosive growth in plush toy series with higher ASP, increasing from less than 10% in the first half of the year to 30%. According to research information, in 2024, Pop Mart will launch a total of 522 new SKUs, a year-on-year increase of 26%, with blind boxes accounting for only 100 items, while most contributions come from other categories with higher gross margins.

This also indicates that excellent IP design is not limited to the type of product performance; the company can maximize the value of a single IP by continuously expanding product categories.

V. Explosive Growth in Overseas Online Sales

From the channel perspective, the biggest highlight is that with the deepening of the DTC model, the company entered more overseas social platforms in the second half of the year and increased its live-streaming efforts on major social platforms, enhancing brand exposure through high-quality content ecosystems and consumer interaction.

As a newly entered platform, TikTok achieved revenue of 260 million yuan in the second half of the year, with its online share rapidly exceeding 20%. Overseas online revenue surged from 100 million to 1.2 billion yuan, an increase of more than 10 times.

VI. Record High Gross Margin

On one hand, the proportion of high-margin overseas business continues to increase (overseas gross margin is about 10% higher than domestic), combined with product structure optimization, the company's gross margin reached a record high of 68.3% in the second half of the year. In addition, the company indicated in the conference call that the proportion of overseas business may exceed 50% by 2025, which means that the overall gross margin of the company is expected to continue to rise.

VII. Continuous decline in expense ratio, a significant increase in profitability

From the perspective of expense ratio, the company increased the proportion of low-cost and more efficient online marketing in the second half of the year and continued to optimize personnel structure and rental costs. Both sales and management expense ratios declined, with core operating profit significantly exceeding expectations. The improvement in gross margin combined with the optimization of the expense ratio led to a net profit margin of 28%, reaching a historical high.