Pop Mart issued a profit warning on 15 July, indicating no less than 200% YoY revenue growth and no less than 350% YoY net profit growth for 1H25. With Labubu becoming a global sensation, we believe the strong financial performance is primarily driven by rising brand recognition, smooth expansion in North America and Europe, and operating leverage. As price hikes were well received by US customers, the growing proportion of overseas revenue is expected to continually lift the company’s GPM. Beyond Labubu, other IPs have also gained rising popularity under the company’s management. Looking into 2H25, we expect the strong growth momentum to continue and forecast full-year net profit to surge by 192% YoY. Reiterate BUY.
　　Key Factors for Rating
　　Accelerated revenue growth with strong operating leverage. According to the profit warning, Pop Mart’s revenue surged by >220% in 1H25, surpassing the growth rates of 165-170% in 1Q25 and 143% in 2H24. In 1H25, Labubu garnered worldwide attention, thanks to the celebrity effect and the release of The Monsters Big into Energy Series (Labubu 3.0). This not only drove sales of Labubu products, but also enhanced Pop Mart’s brand recognition among international customers and significantly boosted store foot traffic. Meanwhile, the company’s net profit expanded by >350% YoY in 1H25, accelerating from 283% YoY growth in 2H24, demonstrating robust operating leverage.
　　US tariffs manageable under strong pricing power. To address margin pressure from increased US tariff rates, Pop Mart implemented a price hike in April, which was well received by customers. For instance, the price of the iconic Labubu plush toy rose from US$22 to US$28, representing a nearly 30% increase. The relatively high GPM in overseas markets is expected to sustain. Additionally, Pop Mart has been relocating production to Vietnam to better serve foreign demand and mitigate impact of further tariff shocks.
　　Spotlight not only on Labubu. While some investors worry that Pop Mart’s growth may slow as the Labubu craze fades, IPs like Crybaby and Twinkle Twinkle have quickly risen in popularity, showcasing the company's strong capabilities in IP incubation and operations. Furthermore, we believe concern over declining second-hand market prices of certain hit products are unnecessary. Rather than relying on scarcity marketing or a few blockbuster series, Pop Mart is expanding production capacity while maintaining a steady pace of new product launches, fostering sustainable growth. Hence, we believe per-store sales will remain impressive over the long term.
　　Key Risks for Rating
　　Downside risks: (i) fierce competition and change in consumer preference; (ii) deteriorated brand equity; (iii) inability to secure popular IPs; (iv) tariff hikes and other regulatory uncertainty; and (v) commodity inflation.
　　Valuation
　　Given the strong performance in 1H25, we revised up our 2025/26 core net profit forecasts by 55%/54% and raised our TP to HK$335.80, based on 45x/32x 2025E/26E P/E (previous: 40x 2025E P/E). Our latest target multiple of 45x implies a 0.45x 2025 PEG ratio. Reiterate BUY.