In a summer of sluggish consumer spending, Chinese toymaker PopMart has alerted investors to double-digit growth in the first half of the year: It now expects revenue to rise by at least 55% and earnings to grow by 90% or more. Morgan Stanley and other investment firms raised their price targets on the Hong Kong-traded stock after PopMart issued a profit alert on July 18. The shares initially rose but have since wobbled amid a broader decline in Asian stocks. “We believe PopMart’s expansion is still in its early stages, with sales of RMB7 billion ($970 million) from China and RMB3 billion from overseas,” Morgan Stanley analysts said last month, noting that there is “a long way to go” as Lego’s global sales total 70 billion yuan annually. PopMart, which is based in Beijing, sells collectible figurines based largely on its own intellectual property, along with sets featuring Minions, Avengers or Disney characters. Each toy costs about $10 and is sold in a “blind” box so customers don’t know which character they’ve purchased. “Basic demand” “We believe the sentimental value combined with the low price sensitivity offered by Pop Mart’s IP products provides strong support for fundamental demand in the Chinese market,” CLSA analysts wrote in a note last month. “We expect 30 retail stores to open this year in China and 21% year-on-year sales growth in China in 2024.” CLSA analysts raised their price target to HK$45 ($5.76), up from 37 previously. They expect single-digit growth in Pop Mart’s store sales in mainland China this year. Retail sales in China grew 2% in June from a year ago, and major Western brands such as Apple and Starbucks reported lower second-quarter sales in China. When Pop Mart listed in Hong Kong in December 2020, the stock price immediately doubled and went on to hit an all-time high of HK$105.21 in February 2021. The stock then fell along with the Hong Kong market, before beginning a recovery this year. Despite the recent pullback, Pop Mart shares have gained more than 90% so far this year — briefly surpassing the 100% mark with a high of HK$41.75 on Wednesday. But even that was still several HK$ below analysts’ latest price targets. Morgan Stanley raised its price target to HK$52, up from HK$45 previously, following Pop Mart’s earnings alert. The Wall Street investment bank has an “overweight” rating on the stock. “We estimate that China’s growth accelerated from 20% in the first quarter to 40% in the second quarter,” Morgan Stanley said. “Strong improvement in online channels and Pop Land were key drivers, while offline sales growth also accelerated (driven by the teens% (same-store sales growth)” Pop Land is a theme park that Pop Mart opened near a major city park in Beijing in September 2023. The company, which counts intellectual property as its primary asset, said in its annual report in April that it had also opened an art gallery, with plans for gaming and animation products. “Pop Land being part of the earnings pulse is encouraging — another example of the value of management’s determination to take on new projects when they are considered ‘far-fetched,’” Morgan Stanley analysts said. “The bad weather and slowing consumption in China have not deterred Pop Mart’s momentum, which is evidence of its growing market share in the emerging IP products segment.” Pop Mart has yet to announce when it will release full first-half results. In 2023, the company published its interim report in late August. Other investment firms are more cautious on Pop Mart shares. China Renaissance rates the stock a “hold,” with a much lower price target of HK$27.39. “Pop Mart’s online sales in June 2024 fell 6% year-on-year, probably because Pop Mart did not offer much discount during the 618 shopping festival, in our view,” China Renaissance analysts said in a report last month, referring to a promotion in mid-June. Also in mid-July, Nomura analysts raised their view on PopMart, but only to “neutral” from “reduce,” albeit with a price target increase to HK$41. “The company is well positioned to maintain its high sales growth momentum in 2H24, in our view (we estimate total sales growth in 2H24 of 39% YoY),” Nomura analysts said. International business growth While most of Pop Mart’s stores are in mainland China, the company has a growing international business with stores in countries ranging from Thailand to the U.S. A day after the opening ceremony of the 2024 Paris Olympics, Pop Mart opened a store in the Louvre. “It is very difficult to predict Pop Mart’s sales momentum from 2025 onwards, as its growth driver is not store openings but the pace of IP product launches,” Jefferies analysts said. They rate the stock a Buy, with a price target of HK$47.40. “We like management’s strategy of focusing on core IP and investing in that IP across different media platforms,” the Jefferies report said. “Pop Mart’s IP could be in the form of not just blind boxes but also games, movies and other product categories. It is also looking to expand its retail format using the theme park as an incubator. This could lengthen the IP cycle if successful.” — CNBC’s Michael Bloom contributed to this report. Disclosure: Comcast is the parent company of NBCUniversal and CNBC. NBCUniversal, the parent company of CNBC, owns NBC Sports and NBC Olympics. NBC Olympics is the U.S. broadcast rights holder for all summer and winter games through 2032.
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Slowing growth in China has not affected this consumer brand.
