Outstanding Performance! Morgan Stanley Raises POP MART's Target Price for the Sixth Time This Year

Thanks to strong revenue growth in overseas markets and e-commerce platforms, POP MART's performance in the third quarter exploded, with international investment banks bullish and significantly raising their target prices.

On October 21, Morgan Stanley raised POP MART's target price to HKD 81 and reiterated an "overweight" rating. Analysts such as Dustin Wei believe that factors such as the potential of overseas markets like Europe and the United States, an innovative product line, and the recovery of the Chinese market are expected to continue to drive POP MART's high-speed growth.

Morgan Stanley stated that although the high base in 2024 may make some investors worry about growth prospects in 2025, they believe that POP MART's ability to create hit products will continue to drive its intellectual property product flywheel.

Morgan Stanley's latest target price offers a 28% upside from POP MART's closing price of HKD 63.45 on October 22. It is worth mentioning that this is Morgan Stanley's sixth target price increase for POP MART this year, less than a week after the last increase.

Goldman Sachs raised POP MART's target price to HKD 70 and maintained a neutral rating. Analysts like Michelle Cheng from Goldman Sachs mentioned in their report that although POP MART's IP momentum is strong, they hold a conservative outlook on its profit margin prospects due to the current retail environment and uncertainty in consumer spending. Jefferies also maintained a buy rating, raising the target price by 52% to HKD 80.5.

On Wednesday, POP MART's stock on the Hong Kong Stock Exchange surged over 20% intraday, with a year-to-date increase of over 270%.

Morgan Stanley: Bullish on Overseas Markets, Product Innovation, and China's Recovery

According to the latest financial report, POP MART's third-quarter revenue increased by 120%-125% year-on-year, with mainland China revenue growing by 55%-60% year-on-year, and Hong Kong, Macau, Taiwan, and overseas revenue increasing by 440%-445% year-on-year.

Morgan Stanley stated that this strong growth far exceeded the bank's expected growth of 70-75%, and is expected to further boost POP MART's operating profit. Morgan Stanley believes that three driving factors will bring good sales growth to POP MART in 2025-26:

Overseas Potential: The very strong overseas sales in 2024 were mainly driven by Asia, and POP MART is accelerating the opening of stores in the United States and Europe. While store revenue in the U.S. is lower than in Southeast Asian markets, it has recently risen to over 2.5 million RMB per month. More importantly, there is much more room to open stores in the U.S. Management emphasizes that the U.S. will be a key source of long-term overseas growth.

Expanding Product Lines: In 2024, POP MART's building block product line had only three series, all based on the Labubu intellectual property. In 2025, the company will launch more products with different intellectual properties, including building blocks, jewelry, dessert shops, cards, etc If one of them succeeds, the long-term incremental revenue potential could be huge. This will reflect POP MART's intellectual property product flywheel - better products strengthen its intellectual property, stronger intellectual property makes the products more popular.

Upside from China: Despite challenging macro backdrop, POP MART's sales in mainland China increased by about 40% year-on-year. With the increasing possibility of improved consumer sentiment by 2025, POP MART is expected to benefit from this potential improvement.

Morgan Stanley has raised its earnings per share (EPS) expectations for POP MART in 2024, 2025, and 2026 by 27%, 18%, and 14% respectively, raising the target price to HKD 81, reiterating an overweight rating, and continuing to apply a multiple of 30 times the target price-to-earnings ratio (P/E) for 2025.

Morgan Stanley also mentioned that the very high base in 2024 may make some investors concerned about the growth space in 2025, but Morgan Stanley reiterated their belief in POP MART's intellectual property product flywheel.

Goldman Sachs: Raises target price to HKD 70, but remains cautious on interest rate outlook

Goldman Sachs believes that POP MART's strong performance in the third quarter demonstrates its strong intellectual property drive and solid category expansion execution, enabling it to significantly improve store productivity in the fluctuating offline retail environment.

Goldman Sachs is surprised by the overseas and online revenue growth of POP MART:

According to management, the proportion of overseas sales exceeded 45% in September, a significant increase from 30% in the first half of the year, which will bring further mixed income and stronger operating leverage.

POP MART's e-commerce channel grew by 135%-140% in the third quarter, with TikTok continuing to grow rapidly, and the growth of the Tmall flagship store also accelerating significantly.

Goldman Sachs points out that Labubu, as a star product, contributed 10% of sales in the first half of the year, with a year-on-year growth rate of 10 times. Goldman Sachs' latest tracker indicates that despite increased supply, price premiums in the secondary market continue.

Goldman Sachs states that as a pioneer in intellectual property development in the Chinese toy sector, POP MART's leading market share position is supported by three core capabilities: 1) mature experience in creating/acquiring intellectual property; 2) commercialization capabilities; 3) strong consumer engagement. It is evolving into a platform with an enhanced intellectual property portfolio and new monetization methods.

Goldman Sachs has raised POP MART's 12-month target price to HKD 70, but maintains a "neutral" rating. Goldman Sachs is cautious about POP MART's profit margin outlook, believing that weakened consumer spending power will affect the visibility of the company's revenue, and the intellectual property launch schedule may also be affected by fluctuations in offline traffic