Labubu maker Popmart flagged for global expansion potential; CGSI initiates coverage

[Hong Kong] CGS International (CGSI) has initiated coverage on Pop Mart’s stock with an “add” rating, citing the group’s transformation from a toy retailer to an intellectual property (IP)-centric platform.

CGSI set the price target for the Chinese stock at HK$249.60, versus its last price of HK$208 at Tuesday close (May 20). That represents upside of about 20 per cent.

“We expect Pop Mart to trade at a premium vs its global peers, considering Pop Mart’s faster growth momentum and larger potential for global expansion,” said CGSI analysts in the note.

Founded in 2010, Pop Mart first rose to fame due to its blind boxes, with popular characters including Labubu, Skullpanda and more.

CGSI analysts noted that Pop Mart’s management said it will focus on expanding to the US and Europe markets, versus South-east Asia in 2024. It plans to open 100 new stores in overseas markets.

It said that the South-east Asia (SEA) market is key to Pop Mart’s global expansion: it contributed 50 per cent of its overseas revenue in FY2024.

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Currently, Pop Mart has a higher penetration rate in East Asia with 49 retail stores, compared with 20 in the US and 15 in Europe in 2024. CGSI estimates the company has potential to reach a total of 350 overseas stores by FY2027.

“SEA market’s pop toy industry is still in the early stage, with a relative small market size currently,” the note said. “We believe that SEA’s pop toy market will achieve faster growth than the world average.”

CGSI named factors such as region’s higher proportion of youth, increasing penetration rate of social media and e-commerce, and growing disposable income.

The securities firm forecasts its domestic revenue to rise by 38 per cent in FY2025, and its overseas revenue to hit a sales compound annual growth rate of 68 per cent between FY2024 and FY2027.

Pop Mart has successfully transformed from a toy retailer to an IP-centric platform, shifting from product sales to IP development and diversified operations, CGSI noted.

Besides trendy toys, Pop Mart’s IP is also widely used in cultural and creative products, food, cosmetics and other fields, it said.

“We also observe that Pop Mart is gradually expanding into theme parks, games and animated cartoons,” said CGSI.

The firm opened its first city park, Pop Land, in September 2023. In June 2024, it launched its first self-developed mobile game Dream Home, marking “another frontier in IP content diversification”.

“We believe (Pop Mart) has built up a competitive advantage in IP platform and operations, and exploring multi-category mediums to improve IP commercialisation. We like the company due to its huge potential in overseas markets, and IP commercial value (beyond toys) in the future,” CGSI said.

It added that any impact from US tariffs will be limited for Pop Mart, as they will be offset mainly by price hikes of American products.