Core Viewpoint - Pop Mart has experienced a significant surge in net profit and revenue, driven by the popularity of its Labubu dolls, but faces potential long-term risks due to changing consumer preferences and regulatory scrutiny on blind-box toys [1][3][4]. Financial Performance - Pop Mart's revenue increased by 204.4% year on year to 13.88 billion yuan ($1.93 billion) for the first half of 2025 [1]. - The net profit attributable to shareholders soared by 396.5% to 4.57 billion yuan [1]. - The company's stock has rallied over 200% since the beginning of the year [4]. Market Dynamics - The Labubu plushies have gained global popularity, with notable appearances on the bags of celebrities like Rihanna and Blackpink's Lisa [2]. - The Asia-Pacific region, excluding China, is the largest overseas market for Pop Mart, with revenue soaring by 257.8% to 2.85 billion yuan [4]. - The Americas represent the second-largest overseas market, with revenue jumping over 1,000% to 2.26 billion yuan [4]. Regulatory Environment - Chinese state media has called for stricter oversight of blind-box toys, suggesting measures such as age verification and parental consent for online purchases [3]. - While not directly naming Pop Mart, state media criticized businesses for encouraging excessive spending on mystery boxes [3]. Business Strategy - Intellectual Property is central to Pop Mart's business model, and the company aims to continue expanding its global footprint [5].

Investment Rating - The report maintains a positive view on the long-term structural story of the Chinese equity market, suggesting potential for fund inflows over the next 6-12 months [17][21]. Core Insights - Market volatility is expected to rise in the near term due to several upcoming global trade and tariff events, which could impact market risk appetite [3][9]. - The upcoming 2Q results season may reignite concerns over earnings, although the expectation is for results to be in line with previous quarters [10][11]. - Investor sentiment may be dampened by the expiration of lockup periods for high-momentum stocks, prompting preemptive reductions in exposure [12]. - The likelihood of major stimulus measures being introduced at the July Politburo meeting is low, with expectations shifting towards September or October for potential policy adjustments [14][15]. Summary by Sections Market Conditions - The report highlights critical dates in July and August that could lead to increased market volatility, including the expiration of tariff pauses and ongoing trade negotiations [3][4][9]. - The report notes that while the Chinese market has shown signs of recovery, uncertainties surrounding trade negotiations and earnings results could lead to temporary profit-taking [11][22]. Earnings Outlook - The report anticipates that the 2Q earnings results will align with expectations, following a trend of normalization in earnings delivery since late 2024 [10][11]. - Concerns over earnings may be exacerbated by the timing of results coinciding with tariff negotiations, potentially leading to skepticism in the second half of 2025 [11]. Investment Strategy - The report suggests a balanced investment approach, advocating for exposure to high-quality tech and Internet companies while maintaining some dividend yield plays [21][22]. - The removal of Pop Mart from the focus list and the addition of PICC P&C is recommended due to its attractive yield and resilience during market volatility [13]. Long-term Outlook - Structural improvements in the Chinese equity market remain intact, with MSCI China trading at a fair valuation compared to other major indices [17][19]. - The report emphasizes the potential for global capital to gradually return to China's market as investors seek diversification amid a slower macro outlook [17][21].