Pop Mart International Group (09992) Report Interpretation

Overview

This earnings-preview report examines whether Pop Mart can maintain earnings growth while overseas online sales reset after exceptional 2025 Labubu demand. Morgan Stanley remains Overweight, viewing China as the near-term earnings anchor and a store-led overseas recovery in 2027 as the central longer-term catalyst, while lowering forecasts and valuation assumptions for the reset.

Core views

Morgan Stanley expects the shares to remain range-bound around 1H26 results. Investor positioning is already bearish after roughly three months with little company information and high-frequency data pointing to a sharp slowdown in overseas sales. The institution argues that its 1H assumptions are conservative and that China offline sales, US and Europe store productivity, overseas SG&A, and gross margin could be better than modeled. It estimates 1H26 sales of Rmb17.9bn, gross margin of 70.1%, operating margin of 39.7%, net margin of 30.3%, and net profit of Rmb5.4bn—equivalent to 29% sales growth and 18% net-profit growth year-on-year. China is expected to offset most of the overseas decline and become a still larger profit contributor. Morgan Stanley forecasts China sales of Rmb12.6bn in 1H26, up 52% year-on-year, comprising 30-40% offline growth and 80-90% online growth. Weaker Douyin momentum is expected to be partly offset by Pop Draw and Tmall. China contributed 62% of segment operating profit before headquarters expenses in 1H25; with about 50% sales growth and stable segment operating margin, Morgan Stanley estimates that contribution will approach 80% in 1H26. New flagship openings, membership growth, better cross-selling, stronger online retention and ARPU, and limited store cannibalization underpin this view. The report attributes the overseas weakness mainly to an unusually high base in online Labubu sales after 2025 social-media buzz, rather than a broad collapse in offline demand. Morgan Stanley forecasts overseas sales down 27% year-on-year in 2026, with online sales down 57% and offline sales roughly flat. For 1H26, it expects overseas sales down 6%; Asia down 11% to Rmb2.5bn, Americas down 8% to Rmb2.1bn, and Europe and other markets up 30-40% to Rmb0.7bn. Across overseas markets, offline sales are expected to rise 23% to Rmb3.2bn while online sales fall 37% to Rmb1.6bn. The institution sees store, pop-up, localized limited-edition and cultural-collaboration demand as more recurring than the earlier online surge, and forecasts overseas sales to return to 24% growth in 2027 as the offline base expands and local execution improves. The reset also creates operating deleverage. Morgan Stanley keeps overseas gross margin at 74.0% in 1H26 but lowers overseas operating margin to 31.0% from 44.1% in 1H25 as Pop Mart invests in stores and local teams. Overseas SG&A is forecast to rise 35% year-on-year despite falling sales, lifting the SG&A ratio to 43% from 30%; overseas SG&A excluding e-commerce platform and transport/logistics costs is expected to exceed Rmb1.8bn, more than double 1H25. At the group level, the report forecasts 2026 revenue of Rmb37.6bn, up 1%, gross margin of 69.7%, SG&A/revenue of 31.4%, and net profit of about Rmb11bn, down 13% year-on-year. The report expects the sharpest year-on-year pressure in 3Q26, forecasting group sales down 30-35%, followed by a 10-15% decline in 4Q26. It nevertheless expects the sequential trend to improve: overseas sales are forecast to grow 5-10% quarter-on-quarter in 3Q and 35-40% in 4Q, with 4Q representing about 33% of full-year overseas sales. Management is expected to guide that 2H26 sales exceed 1H26; Morgan Stanley forecasts 2H sales 10% above 1H but 15% below 2H25. Key execution evidence includes global inventory and merchandising coordination, disciplined store openings, overseas membership systems, US/Europe/Japan rollout of the Pop Now direct-to-consumer format, and whether US offline growth can offset e-commerce normalization. Morgan Stanley cut its 2026/27/28 revenue forecasts by 10%/13%/15%, respectively, largely due to lower overseas assumptions. It reduced gross-margin assumptions by 1.1ppt/1.1ppt/1.0ppt for regional mix, freight and lower plush-product channel markups, while raising SG&A-ratio assumptions by 1.3ppt/1.2ppt/1.0ppt for operating deleverage. Adjusted net-margin forecasts are now 29.5%, 29.1% and 29.0% for 2026-28. Even after these revisions, the institution forecasts 14% sales CAGR and 13% adjusted net-profit CAGR for 2026-28, supported mainly by overseas recovery. The target price was cut from HK$247 to HK$214 after rolling valuation to 2027, reflecting both lower earnings estimates and a lower target P/E of 21x versus 23x previously. The base case implies about 1.6x PEG on 13% 2026-28 EPS CAGR. Morgan Stanley's bull case is HK$286, using 2027 EPS 20% above base case and a 23x P/E; the bear case is HK$108, using 2027 EPS 25% below base case and a 14x P/E. The institution argues that confirmation of overseas stabilization or sequential recovery could support a higher multiple, citing North America and Europe as roughly 75% of global IP collectible spending and Pop Mart's strong cash flow and 35% ROE as support for its business model.

Analysis framework

Morgan Stanley combines regional sales and channel forecasts with margin and SG&A assumptions to model earnings. It separates China from overseas markets and distinguishes offline from online demand to assess whether the overseas decline is base-effect-driven or reflects broader demand weakness. It then revises multi-year earnings estimates and applies scenario P/E multiples to 2027 earnings for base, bull and bear valuations.

Methodology notes

• Industry AnalysisVolume-price decomposition

  Regional and channel-level sales decomposition

  The report breaks sales into China, Asia, Americas and Europe, and further into offline and online channels, to show that the overseas reset is concentrated in online demand rather than store demand.

• Corporate Fundamentals and FinanceOperating and Financial Leverage Analysis

  Operating deleverage from overseas expansion costs

  Morgan Stanley links falling overseas sales and rising fixed SG&A to lower overseas operating margin, while assessing whether store productivity and cost control could improve the result.

• Valuation methodsP/E and PEG Valuation

  Scenario P/E valuation using 2027 estimated EPS and implied PEG

  The report values Pop Mart using 21x 2027e P/E in its base case, 23x in the bull case and 14x in the bear case, with PEG used to relate the multiple to projected EPS growth.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Pop Mart International Group (09992.HK)

  Primary covered company; China earnings resilience is expected to offset much of the 2026 overseas online reset.

  Strengths

  China growth, recurring store-led overseas demand, expanding store network, strong cash flow and a forecast 35% ROE in 2028.

  Weaknesses

  Overseas online sales are resetting from a high 2025 base, while rising overseas SG&A drives operating deleverage.

  Comparison

  Morgan Stanley views Pop Mart as being at an early stage relative to the global IP-product opportunity, with North America and Europe representing about 75% of global IP collectible spending.

  Risks

  Weak consumption, a shorter pop-toy/IP life cycle, slower overseas expansion, weaker new-product momentum and trade tensions could pressure earnings and valuation.

Key data

• 1H26 sales forecastRmb17.9bn29% year-on-year growth
• 1H26 net-profit forecastRmb5.4bn18% year-on-year growth
• 1H26 gross margin70.1%Broadly flat year-on-year but below 73.2% in 2H25
• 1H26 China sales forecastRmb12.6bnUp 52% year-on-year
• 2026 overseas sales forecastRmb11.9bnDown 27% year-on-year, mainly due to online channels
• 2026 revenue forecastRmb37.6bnUp 1% year-on-year; revised down 10% from the prior estimate
• 2026 net-profit forecastRmb11bnDown 13% year-on-year
• 2026-28 adjusted net-profit CAGR13%Morgan Stanley forecast
• Base-case target priceHK$21421x 2027e P/E; reduced from HK$247
• Bull and bear valuesHK$286 / HK$108Based on 23x / 14x 2027e P/E scenario multiples

Impact & implications

Morgan Stanley sees the crucial distinction as whether overseas weakness remains concentrated in lapping online Labubu demand while store-led demand develops. Confirmation of that pattern, alongside China resilience and progress on global coordination, store productivity and membership, would support its view of a 2027 overseas recovery and potential valuation re-rating.

Risks

• Retail investors expecting double-digit 2026 sales growth may be disappointed by Morgan Stanley's forecast of only 1% growth and its expected 3Q26 sales decline.
• A weaker-than-expected consumption environment in China or overseas markets could reduce sales and earnings.
• IP and product momentum could prove shorter-lived, or Pop Mart could fail to continue creating appealing products.
• Overseas expansion, new businesses, store productivity or online-to-offline transition could underperform expectations.
• Trade tensions are identified as a risk.

What to watch

• China offline sales growth, flagship-store penetration and possible cannibalization.
• US and Europe store productivity and whether offline growth offsets online normalization.
• Overseas SG&A, gross margin and evidence of better cost management.
• 3Q26 and 4Q26 sequential overseas-sales trends as the high online comparison base resets.
• Progress on global inventory coordination, disciplined store openings, overseas membership systems and Pop Now rollout.
• Management's 2H26 sales guidance and its assessment of China and overseas demand.