Core Viewpoint - Morgan Stanley believes that the fundamentals of Pop Mart have not changed but have instead strengthened, and the market's panic presents an excellent allocation opportunity [1] Group 1: Rating and Price Target Adjustment - On October 15, Morgan Stanley upgraded Pop Mart's rating from "Neutral" to "Overweight," raising the target price from 300 HKD to 320 HKD based on two key factors [2] - The first factor is the continued strength of popular IPs, with Labubu's production capacity increased tenfold compared to Q1, yet Labubu 3.0 and Mini Labubu remain sold out in all regions [2][5] - The new IP "Star People" is rapidly emerging, expected to contribute 8% of sales in 2027 [2][10] Group 2: Valuation and Market Sentiment - The second factor is the significant improvement in valuation, with the stock price down 24% from its August peak while the Hang Seng Index rose 7%, leading to a more attractive risk-reward ratio with a projected 20x P/E for 2026 [3][11] - Morgan Stanley emphasizes that Pop Mart's success is not reliant on a single IP, showcasing its global layout and strong pricing power to withstand external risks [3] Group 3: Core Engine and Demand Sustainability - Labubu remains the core engine of growth for Pop Mart, with its astonishing popularity supporting the company's expansion [4] - Despite a tenfold increase in Labubu's production capacity, the products remain sold out, dispelling market concerns about sustainable demand [5] Group 4: New IP Development - The new IP "Star People" is proving the company's ability to diversify its IP matrix, with products from the Halloween series selling out within minutes on major online platforms [8] - The secondary market shows a premium of 130% for "Star People," indicating a genuine fan base rather than just a substitute for Labubu [9][10] Group 5: Financial Projections and Growth - Morgan Stanley has raised its earnings forecasts for Pop Mart by 5-7% for 2025-2027, with expected sales and adjusted profits for 2025 growing by 165% and 276% year-on-year, respectively [14][15] - The company is projected to continue strong growth in 2026, with sales and profits expected to grow by 28% and 29% year-on-year [15] Group 6: Global Supply Chain and Trade Risks - Morgan Stanley believes that concerns over global trade friction and tariff risks will have a limited financial impact on Pop Mart [17] - The company has prepared inventory for the 2025 Q4 shopping season to mitigate recent tariff fluctuations and has the ability to raise prices to offset cost increases [18] - Morgan Stanley estimates that a price increase of about 15% would fully offset the impact of tariffs on gross margins in the Americas [19] Group 7: Global Expansion Strategy - To support long-term global expansion, Pop Mart is planning six major manufacturing centers (four in China and two overseas) [20] - Sales contribution from the Americas is expected to rise from approximately 21% in 2025 to 28% in 2027, with overseas business contributing nearly 60% to group earnings by 2027 [21] - The increasing uncertainty of tariffs may accelerate the company's global supply chain layout, fundamentally reducing geopolitical risks [22]

Core Viewpoint - Morgan Stanley upgraded Pop Mart's rating from "Neutral" to "Overweight" and raised the target price from 300 HKD to 320 HKD, citing strong performance of popular IPs and attractive valuation as key factors [2][3][4] Group 1: Strong IP Performance - The continued success of Labubu and the rapid rise of the new IP "Star People" demonstrate Pop Mart's ability to diversify its IP portfolio, reducing reliance on a single IP [1][3][10] - Labubu's production capacity has increased tenfold compared to Q1 2025, yet Labubu 3.0 and Mini Labubu remain sold out across all regions, dispelling market concerns about demand sustainability [5][10] - The new IP "Star People" is expected to contribute 8% to total sales by 2027, indicating strong market acceptance and a growing fan base [10][11] Group 2: Attractive Valuation - Pop Mart's stock price has declined 24% from its recent high of 335.40 HKD to 254 HKD, while the Hang Seng Index rose 7% during the same period, suggesting overly pessimistic market expectations [12][14] - Morgan Stanley forecasts a 5-7% increase in earnings estimates for 2025 to 2027, with projected sales growth of 165% and adjusted profit growth of 276% for 2025 [15][16] - The current forecasted P/E ratio for 2026 is only 20 times, which is attractive compared to other lower-quality consumer goods companies [17] Group 3: Global Supply Chain and Pricing Power - Morgan Stanley believes that the financial impact of global trade tensions on Pop Mart will be limited, as the company has prepared inventory for the 2025 Q4 shopping season [19][20] - The company has the ability to raise prices to offset rising costs, having successfully increased blind box prices by 12% and plush toy prices by 27% in April 2025 [20][21] - Pop Mart is planning six global manufacturing centers to support long-term expansion, with sales contribution from the Americas expected to rise from 21% in 2025 to 28% in 2027 [22][23]

Investment Rating - The investment rating for the company is maintained as "Buy" [5] Core Views - The company reported a revenue of 1.338 billion yuan for the first half of 2025, representing a year-on-year increase of 27.9%, with an adjusted net profit of 320 million yuan, up 9.6% year-on-year [1] - Domestic revenue grew steadily, while overseas business experienced rapid growth, with overseas revenue reaching 111 million yuan, a staggering increase of 898.6% year-on-year [1] - The company has commercialized 19 IPs and expanded its SKU count to 925, with a more balanced IP structure compared to the previous year [2] - The company has made significant investments in R&D, with R&D expenses increasing by 69.5% year-on-year, indicating a commitment to innovation and product development [3] - The company is expected to see further market penetration and improvement in profit margins as mold investments begin to yield returns [4] Summary by Sections Financial Performance - For the first half of 2025, the company achieved a gross profit margin of 48.4%, although it decreased by 4.3 percentage points year-on-year due to increased mold depreciation [1] - The company’s cash reserves stood at 2.641 billion yuan, indicating a strong liquidity position [3] - The projected adjusted net profits for 2025, 2026, and 2027 are 760 million yuan, 1 billion yuan, and 1.306 billion yuan respectively, with corresponding P/E ratios of 25.6X, 17.1X, and 12.9X [5][7] Market Expansion - The company’s overseas revenue now accounts for 8.3% of total revenue, with significant contributions from markets in the United States and Indonesia [1] - The company has seen a substantial increase in online sales, with a year-on-year growth of 44.6% [1] Product Development - The company’s product lineup includes a diverse range of IPs, with the top four IPs contributing 83.1% of total revenue, indicating a shift towards a more balanced IP portfolio [2] - The introduction of affordable products priced at 9.9 yuan has been successful, generating revenue of 216 million yuan [2] Cost Management - The sales expense ratio increased to 13.2%, primarily due to higher marketing and personnel costs, while the management expense ratio decreased significantly [3]