Pop Mart: The sewing machine is "smoking", can the bubble continue to soar?

$POP MART(09992.HK) On the evening of August 19th, Beijing time, Pop Mart (9992.HK) released its 2025 H1 results, with both revenue and profit surpassing last year's full-year levels, still presenting a commendable report. Compared to the recently announced forecast, while revenue remained stable, the key point is that profit increased by nearly 400% year-on-year (the forecast indicated no less than 350%), exceeding market expectations.

The specific points are as follows:

1. Revenue met expectations, with a larger discrepancy in profit expectations: In 25H1, Pop Mart achieved total revenue of 13.88 billion yuan, a year-on-year increase of 204%. Breaking it down, firstly, considering the overseas performance growth rate in Q1 already announced in March, the growth rate accelerated quarter-on-quarter in developed regions such as Europe and America (East Asia & Hong Kong, Macau, Taiwan, Southeast Asia regions are disclosed under the Asia-Pacific region, so it is temporarily impossible to judge), the core is that starting in April, driven by global streaming media such as Instagram, TikTok, YouTube, the popularity of LABUBU quickly spread to mainstream developed countries such as the United States, United Kingdom, Canada, Australia, triggering a global buying frenzy.

Domestically, revenue reached 8.28 billion yuan (including Hong Kong, Macau, Taiwan), a year-on-year increase of 135.2%, accompanied by the company's brand awareness enhancement, diversified product categories & IP launches, the foot traffic in domestic offline retail stores was significantly higher than the same period last year. However, since sellers generally track the sales situation of key domestic stores on a monthly basis, it is difficult to have a significant discrepancy in revenue expectations. The truly impressive aspect is that under the release of operating leverage, the company achieved a net profit attributable to the parent company of 4.57 billion yuan, a year-on-year increase of 400%.

2. Accelerated overseas store openings. In terms of store opening pace, thanks to LABUBU driving overseas breakthroughs, the company significantly increased its store layout in overseas regions in the first half of the year, with 28 new stores added overseas, reaching a total of 128 stores by 25H1, with North America being the main expansion area (19 stores opened). Combined with the company's goal of opening more than 100 new overseas stores throughout 2025, Dolphin Research expects the pace of store openings in Europe and America to accelerate in the second half of the year.

For domestic regions, the pace of store openings has significantly slowed compared to the same period last year (averaging 19 stores opened in half a year), with only 12 new stores added, shifting focus to renovating and upgrading existing stores to larger areas and better locations to attract higher foot traffic. The new stores are mostly concentrated in second-tier and lower-tier cities.

3. LABUBU sewing machine "smoking". In terms of the contribution of each IP to performance, due to the explosive popularity of LABUBU in developed countries such as Europe and America, since the launch of the LABUBU 3.0 series in April, it has become a global hit, remaining in a state of supply shortage for a long time, with sales surging, the proportion of The Monster series increased by 6 percentage points to 35%. Additionally, other IPs have maintained strong vitality through image evolution and iteration, with the Star series becoming the company's fastest-growing IP, currently accounting for nearly 3%.

The overall IP matrix is relatively healthy.

4. Plush toys have risen to become the largest category. In terms of product categories, the proportion of figurines represented by blind boxes continues to decline, replaced by explosive growth in the plush toy series with higher gross margins. In addition to the surge in sales of The Monsters series, it can be seen that many other IPs under the company have gradually adopted plush toy designs, with the overall proportion soaring from less than 10% in the same period last year to 44%, becoming the primary pillar. Additionally, building blocks, as Pop Mart's strategic new product, currently perform well in overseas regions, but the current scale is still small and needs to be observed.

5. Significant increase in online proportion. In terms of channels, whether domestically or overseas, the proportion of online channels has significantly increased by more than 10 percentage points compared to the same period last year, on one hand, the company launched a new product online first mechanism, on the other hand, the company increased live broadcast operations and actively entered more overseas e-commerce platforms, significantly improving online conversion rates.

6. Record high gross margin. In terms of gross margin, with the continuous increase in the proportion of high-margin overseas business (overseas gross margin is about 10% higher than domestic), coupled with product structure optimization, the company's gross margin reached a record high of 70% in the first half of the year. In addition, the company stated in a conference call that the proportion of overseas business may exceed 50% in 2025, which means that as the overseas region enters the peak season, the company's gross margin in the second half of the year is expected to continue to rise.

In terms of expense ratio, due to the company's increased traffic on overseas online platforms (Ins, TikTok, etc.), the customer acquisition cost of channels is far lower than traditional channels, resulting in a significant decrease in sales expense ratio, while the management expense ratio has also significantly decreased due to the company's restrained investment and improved internal decision-making efficiency, ultimately exceeding market expectations in core operating profit.

7. Detailed financial data overview:

Dolphin Research's overall view:

Dolphin Research mentioned in Pop Mart: Overseas God! Pop Mart "Speeding" all the way that under the support of leading IPs, the expansion of multiple categories + market expansion logic will make 2025 a year of continuous explosion, coupled with research information showing that LABUBU's production capacity will increase in the second half of the year, from 3-4 million units/month at the beginning of the year to 10 million units/month in September, so the certainty of this year's performance is almost unquestionable.

However, at the current node, the real concern of the market is the sustainability of the company's performance starting from 2026 under the high base of 2025, after all, the core of this round of high-speed growth in Pop Mart's performance is still driven by the product cycle brought by LABUBU's breakthrough in soft vinyl plush toys.

The Monsters series, currently as Pop Mart's largest IP, has reached nearly 35% of sales proportion after nearly a year of "speeding", even with the company's active control of goods. This means that next year, under a high base, if consumers experience aesthetic fatigue with LABUBU, it will have a relatively large impact on Pop Mart's overall performance.

But in fact, from the interim report, the proportion of The Monsters series is not as high as the market expected (expected to be over 40%), on one hand, classic IPs such as Molly and SKULLPANDA have actually broadened consumer boundaries through image evolution, which can be discovered by benchmarking Sanrio, the iteration of the IP itself will continuously attract new groups and extend the IP's own lifecycle. On the other hand, from the rapid growth of CRYBABY in the second half of last year to the Star series in the first half of this year (the two currently contribute more than 10% combined), it can be seen that there are constantly mid-tier IPs stepping up to take over, which is also considered by Dolphin Research to be beyond expectations besides the performance itself.

In fact, whether it is entering high-end jewelry, building blocks, small appliances, or collaborating with Uniqlo on clothing, it is actually consuming and monetizing existing IPs, so for Pop Mart, the most important thing is to delay the IP lifecycle of The Monsters series as much as possible through various operational means, and on the other hand, to increase efforts to cultivate mid-tier IPs, which is the best way to resist product cycle fluctuations.

In terms of valuation, in the short term, considering that overseas will enter the peak season starting from the second half of the year, according to the performance pattern of previous years, if the neutral situation is estimated based on the first half of the year's performance accounting for 40% of the full year, and the second half accounting for 60%, the corresponding net profit for Pop Mart for the full year is 11.4 billion yuan, corresponding to a valuation of 30x.

Compared to Dolphin Research's calculated compound growth rate of 28% for profits from 2026-2029, the valuation is not considered high, but since the current market expectations are actually quite full, the potential upside space depends more on the sustainability of The Monsters series' popularity and whether the popularity of other IPs can exceed expectations.

Additionally, the results of the Hang Seng Index series adjustment will be announced after the close on August 22nd, and if Pop Mart is selected as a potential candidate, it will also bring new incremental funds support, with specific decisions depending on investors' risk preferences.

The following is a detailed interpretation of the financial report:

I. Revenue met expectations, with a larger discrepancy in profit expectations

In 25H1, Pop Mart achieved total revenue of 13.88 billion yuan, a year-on-year increase of 204%. Breaking it down, firstly, considering the overseas performance growth rate in Q1 already announced in March, the growth rate accelerated quarter-on-quarter in developed regions such as Europe and America (East Asia & Hong Kong, Macau, Taiwan, Southeast Asia regions are disclosed under the Asia-Pacific region, so it is temporarily impossible to judge), the core is that starting in April, driven by global streaming media such as Instagram, TikTok, YouTube, the popularity of LABUBU quickly spread to mainstream developed countries such as the United States, United Kingdom, Canada, Australia, triggering a global buying frenzy.

From the revenue proportion of various overseas regions, it can be seen that the proportion of North America and Europe has significantly increased, especially in North America, where LABUBU successfully broke through and became the social currency of Generation Z youth in the United States, coupled with higher overseas unit prices, the revenue in North America showed explosive growth.

II. Accelerated overseas store openings

In terms of store opening pace, thanks to LABUBU driving overseas breakthroughs, the company significantly increased its store layout in overseas regions in the first half of the year, with 28 new stores added overseas, reaching a total of 128 stores by 25H1, with North America being the main expansion area (19 stores opened). Mostly concentrated in high population density and areas with a high concentration of Chinese people.

Combined with the company's goal of opening more than 100 new overseas stores throughout 2025, Dolphin Research expects the pace of store openings in Europe and America to accelerate in the second half of the year.

From the perspective of store opening space, as "the world's Pop Mart", the current number of stores in overseas regions is only half of that in China, benchmarking against international companies with a store opening model like LEGO, Pop Mart still has at least double the space for store openings overseas, corresponding to around 400 stores.

In terms of single-store revenue, domestically, with the upgrade of store quality and the expansion of categories, Dolphin Research estimates that the average single-store revenue in the first half of the year reached 8.35 million yuan, a year-on-year increase of 54%, with both foot traffic and average transaction value significantly improving compared to the same period last year.

Due to the rapid pace of store openings overseas, the growth rate of single-store revenue has slowed compared to the second half of last year, achieving single-store revenue of 23.2 million yuan, nearly three times that of domestic stores.

Overall, although Pop Mart's store opening space is far from reaching the ceiling, stores are ultimately places for transaction conversion, if the popularity of Pop Mart's products declines, leading to sales obstacles, stores may become a burden, so the core is still the sustainability of Pop Mart's IP popularity.

III. LABUBU sewing machine "smoking"

In terms of the contribution of each IP to performance, due to the explosive popularity of LABUBU in developed countries such as Europe and America, since the launch of the LABUBU 3.0 series in April, it has become a global hit, remaining in a state of supply shortage for a long time, with sales surging, the proportion of The Monster series increased by 6 percentage points to 35%. Additionally, other IPs have maintained strong vitality through image evolution and iteration, with the Star series becoming the company's fastest-growing IP, currently accounting for nearly 3%.

As the soul of all Pop Mart's business, Dolphin Research believes the core needs to be observed in the second half of the year are 1) whether the proportion of The Monsters series will further increase when the overseas peak season arrives, if the production capacity bottleneck is resolved, the continuous volume increase of The Monsters series overseas in the second half of the year may put pressure on the performance in 2026 under a high base. 2) Whether the popularity of the Star series and CRYBABY series can further rise, driving the proportion increase to alleviate the pressure of relying on a single IP.

IV. Plush toys have risen to become the largest category

In terms of product categories, the proportion of figurines represented by blind boxes continues to decline, replaced by explosive growth in the plush toy series with higher gross margins. In addition to the surge in sales of The Monsters series, it can be seen that many other IPs under the company have gradually adopted plush toy designs, with the overall proportion soaring from less than 10% in the same period last year to 44%, becoming the primary pillar.

After the launch of building blocks, they performed significantly better overseas than domestically, Dolphin Research speculates that this may be due to more intense competition in the domestic market, and Pop Mart's pricing is relatively high.

V. Significant increase in online proportion

In terms of channels, the biggest highlight is that with the deepening of the DTC model, the company entered more social platforms in the first half of the year and increased live broadcast efforts on major social platforms, interacting with consumers through high-quality content ecosystems to enhance brand exposure, significantly improving online conversion rates, whether domestically or overseas, the proportion of online channels has significantly increased by more than 10 percentage points compared to the same period last year.

VI. Record high gross margin

In terms of gross margin, with the continuous increase in the proportion of high-margin overseas business (overseas gross margin is about 10% higher than domestic), coupled with product structure optimization, the company's gross margin reached a record high of 70% in the first half of the year. In addition, the company stated in a conference call that the proportion of overseas business may exceed 50% in 2025, which means that as the overseas region enters the peak season, the company's gross margin in the second half of the year is expected to continue to rise.

VII. Operating leverage release, profitability significantly increased

In terms of expense ratio, firstly in sales expenses, due to the company's increased traffic on overseas online platforms (Ins, TikTok, etc.), the customer acquisition cost of channels is far lower than traditional channels, resulting in a decrease in sales expense ratio by 6.7 percentage points to 23%; while in management expenses, on one hand, the company strengthened intelligent management of the supply chain in the first half of the year, effectively reducing operational complexity, on the other hand, Pop Mart reorganized the company's internal structure, setting up regional headquarters in Greater China, Americas, Asia-Pacific, and Europe, improving decision-making efficiency, management expense ratio decreased by 4 percentage points to 5.5%, ultimately significantly increasing net profit margin by 12 percentage points to 34%.