Morgan Stanley has raised the target price for Pop Mart to HK$81, reiterating its “Overweight” rating.
It’s the sixth time Morgan Stanley has raised Pop Mart’s target price this year, coming less than a week after the last adjustment.The bank has also raised the earnings per share (EPS) estimates for Pop Mart for 2024, 2025, and 2026 by 27%, 18%, and 14%, respectively.
The potential of overseas markets in Europe and the US, an innovative product line, and the recovery of the Chinese market are expected to drive continued rapid growth for Pop Mart, the bank said.
Pop Mart reported that its Q3 revenue is expected to surge 120%-125% year-on-year, with mainland China revenue growing 55%-60% and revenue from Hong Kong, Macau, Taiwan, and overseas markets skyrocketing 440%-445%.The strong growth far exceeds the expected growth of 70%-75% and is likely to further boost Pop Mart’s operating profits, Morgan Stanley said.
The strong overseas sales so far in 2024 are mainly driven by Asia and Pop Mart is accelerating the opening of stores in the US and Europe. While store revenues in the US are lower than in Southeast Asian markets, they have recently topped 2.5 million yuan per month, and more importantly, the potential for store openings in the US is much bigger than in Southeast Asia, with management viewing the US as a key source of long-term overseas growth, the bank noted.
In 2024, Pop Mart’s building block product line had only three series, all based on the Labubu IP and in 2025, it plans to launch more products with different intellectual properties, including building blocks, jewelry, dessert shops, and cards. If any of these succeed, the potential incremental income could be significant in the long term, reflecting Pop Mart’s IP product flywheel, it said.
Despite a challenging macroeconomic backdrop, Pop Mart’s sales in mainland China has increased year-on-year, and as consumer sentiment is expected to improve in 2025, Pop Mart is expected to benefit from this potential improvement, it added.
While the high base in 2024 might raise concerns among some investors about growth potential in 2025, the bank believes in Pop Mart’s ability to create hits that continue to drive its intellectual property (IP) product flywheel.