大摩最新分析指出，Morgan Stanley believes that the decline in resale prices is driven by an increase in supply rather than a decrease in demand. The company's recent restocking strategy may drive sales growth in the fourth quarter of 2024 (4Q24) and the first half of 2025 (1H25), while reducing resale activities, thereby improving the Consumer experience.
Recently, the resale price of the popular toy Labubu has declined, raising market concerns. Between December 23 and 27, POP MART's stock fell about 9% over three trading days, and today, POP MART's Hong Kong stock price fell more than 6% again. However, Morgan Stanley believes that the market's concern over the decline in resale prices is overstated, and proactive restocking and Global expansion will help the company continue to achieve high growth next year.
In a report on January 5, Morgan Stanley pointed out that this round of volatility was mainly caused by market concerns over the declining resale prices of Labubu plush toys in the China market, as well as profit-taking behavior at the end of the year, and that the market's reaction to the drop in resale prices has been excessively sensitive.
Morgan Stanley's latest analysis indicates that the decrease in resale prices is driven by an increase in supply rather than a decrease in demand. The company’s recent restocking strategy may drive sales growth in the fourth quarter of 2024 (4Q24) and the first half of 2025 (1H25), while also reducing resale activities, thereby improving the Consumer experience.
Furthermore, Morgan Stanley stated that Global expansion has prolonged popularity, and the IP product flywheel effect remains intact. It expects POP MART to achieve a 35% sales growth in 2025, achieving the fastest sales growth among large consumer brands. As overseas sales and earnings mix may exceed 50% in 2025, its valuation premium is justified, and it has raised the Target Price to HKD 113, indicating a 27% upside potential from the current stock price.
The market is overly concerned about the drop in resale prices.
It is worth mentioning that due to the popularity of POP MART's IP, many scalpers have been hoarding scarce products, forcing some consumers to pay a premium to purchase them, which diminishes the experience for loyal fans and potentially leads to counterfeit products in the resale market.
POP MART's strategy has always been to try to meet 70-80% of the "actual demand" for its most popular products, where IP products require a "slight shortage" to maintain the growth of their popularity. However, months of severe shortages made management realize that supply was far below the ideal level, so the company began to replenish stock more aggressively since the end of October. The increase in supply has caused the price of Labubu plush toys in the resale market to drop, and now resellers are eager to clear their inventory, with resale prices approaching the original listing price.
Morgan Stanley believes that the market is overly concerned about the decline in resale prices:
- Supply increases rather than demand decreases: The decline in the resale price of Labubu plush toys is mainly due to an increase in supply rather than a decrease in demand.
- Consumer preference: Consumers prefer to purchase directly from official channels rather than buying from resellers.
- Product attributes: These products are "non-limited editions," so resale prices should not have a significant premium, unlike high-end Baijiu.
Morgan Stanley believes that POP MART's measures may bring the following benefits:
Sales growth in the fourth quarter of 2024 may exceed the predicted year-on-year growth of 120-125% in the model, suppressing future stockpiling behavior by resellers and reducing the risk of inventory backlog.
In addition, to prevent oversupply, POP MART is thoughtful in managing replenishments and uses online indicators to monitor supply-demand balance, such as sales speed after product restocking and trends in customer pre-orders.
Current popular IP (Intellectual Property) products are still in short supply, such as Labubu, Skullpanda, and Crybaby. Morgan Stanley believes that the demand for POP MART's top IP products still far exceeds the supply. Moreover, POP MART's international market accounts for about 50% of total sales, which means that the trends in China should not be overly extrapolated to the overall performance.
Sales growth will remain strong next year.
Morgan Stanley believes that POP MART will achieve the fastest sales growth, predicting a 35% increase in sales by 2025, with China growing by 12% and overseas by 69%. The main growth drivers include:
1. Global expansion remains a key driving force for growth, with international sales expected to account for over 50% of total revenue by 2025. Continued global expansion, particularly in Southeast Asia and the USA.
Southeast Asia: By the end of 2024, there will be 10-12 stores in Southeast Asia (excluding Singapore), expected to increase to about 20 by 2025, with stores maintaining high productivity. USA: There will be 20 stores in the USA in 2024, and expected to increase to over 40 in 2025. The productivity of stores in the USA has improved from 2 million yuan per store in 2023 to 2.5-3 million yuan per store in the third quarter of 2024.
2. Popular products will continue to be restocked in the first half of 2025.
3. Strategically delaying some product launches in 2024 to make room for the Labubu series; Skullpanda, Crybaby, Twinkle Twinkle, and Chaka may bring positive surprises.
4. The pace of introducing new categories (such as Pop Blocks, cake shops, jewelry, card trading) will slow down to ensure the quality of new products exceeds consumer expectations.
Overall, Morgan Stanley believes that POP MART has the potential to become one of the fastest-growing companies in the Consumer Industry due to its Global expansion, IP ecosystem, and active inventory management. Morgan Stanley expects POP MART's Net income in 2025 to be 4.091 billion yuan, a 37.4% increase compared to 2024. The EPS is expected to be 3.06 yuan, corresponding to a PE of 29.9 times. The Target Price is 113 HKD, indicating a 27% upside potential compared to the current stock price of 88.4 HKD.
