Earnings Reassessment Continues but Valuation Risks Are Limited; Maintaining Buy Rating
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Earnings Reassessment Continues but Valuation Risks Are Limited; Maintaining Buy Rating
HSBC maintains its buy rating on Pop Mart, lowering the target price to HK$235.50, believing that most of the impact from downward earnings revisions has already been reflected in valuations, with medium- to long-term IP platform value set to emerge.
- First-quarter 2026 revenue is expected to decline quarter-over-quarter, as Labubu demand normalizes, leading to slower growth.
- Valuation multiples have already factored in the risk of earnings downgrades, with the current P/E ratio of 11 times near the cycle’s bottom.
- Medium- to long-term growth hinges on IP diversification and global retail expansion.
- The target price has been cut by 28.5% to HK$235.50, implying 50.9% upside potential.
- Revenue growth forecast for 2026 has been revised down from 20% to 14%, while non-IFRS net profit growth has been lowered from 18% to 10%.
Report interpretation
Overview
This report provides HSBC’s earnings commentary on Pop Mart (09992.HK), maintaining a buy rating while reducing the target price to HK$235.50. The key takeaway is that short-term earnings forecasts have been lowered due to the normalization of Labubu demand, yet most valuation risks have already been absorbed, with medium- to long-term IP platform value and global expansion poised to support growth.
Core views
Earnings Forecasts Revised Downward: First-quarter 2026 revenue is projected at RMB 9.9 billion, marking a low-single-digit quarter-over-quarter decline—the second consecutive quarterly drop. Full-year 2026 revenue growth has been trimmed from 20% to 14%, and non-IFRS net profit growth has been reduced from 18% to 10%, primarily due to heightened risks associated with reliance on Labubu, which accounts for 38% of total IP contributions. Valuation Risks Have Been Released: The current stock price corresponds to a 2026 P/E ratio of 11 times, matching the valuation levels seen at the trough of the previous earnings downgrade cycle in 2022, indicating that valuation compression has largely anticipated future earnings declines. Going forward, stock performance will depend more on earnings stabilization than further valuation cuts. IP Platform Value Remains Untapped: While short-term growth is weighed down by waning Labubu enthusiasm, medium- to long-term prospects—including IP diversification, new category expansion, and global store network growth (with stores expected to rise from 3,389 to 3,759 between 2026 and 2028)—could enable platform-based growth and drive valuation recovery.
Analysis framework
HSBC employs a DCF valuation methodology, recalculating the target price based on adjusted earnings forecasts and changes in WACC. The analytical framework follows three main lines: 1) Identifying near-term growth pressures through quarterly revenue breakdowns and IP contribution analysis; 2) Assessing the current valuation position relative to historical cycles; 3) Evaluating medium- to long-term value based on IP platformization capabilities and progress in globalization. Key assumptions include raising WACC from 11.4% to 13.5% to reflect uncertainty, while maintaining a terminal growth rate of 3%.
Methodology notes
Calculating enterprise value by projecting free cash flows and discounting them back to present value
The report uses a DCF model, adjusting WACC and earnings forecasts before recomputing the target price, thereby highlighting valuation sensitivity to earnings and risk parameters.
Analyzing the alignment between IP popularity (demand) and product supply
By examining Labubu contribution percentages and online GMV data, the report assesses how normalized single-IP demand impacts short-term growth.
Monitoring non-IFRS net profits and margin trends
When revising earnings forecasts, the report simultaneously analyzes pressure on retail margins, illustrating how slowing revenue growth affects overall profitability.
Asset mapping & comparison
Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).
- Pop Mart (09992.HK)Directly covered asset benefiting from IP platformization and global expansion
- Strengths
- IP incubation capability, global retail network, high profit margins
- Weaknesses
- Dependence on a single IP, short-term growth slowdown
- Risks
- Supply chain disruptions, failure to renew IP licenses, intensifying competition
Key data
- 2026 Revenue Growth Forecast14%Down from the previous 20%, below management's >20% target.
- 2026 Non-IFRS Net Profit Growth10%Significantly lower than the prior 18%.
- Target PriceHK$235.50Reduced from the earlier HK$329.50, a 28.5% cut.
- Current P/E Ratio (2026)11xClose to the 11x level seen at the bottom of the previous cycle.
- WACC Assumption13.5%Raised from the previous 11.4% to reflect uncertainty.
Impact & implications
The report concludes that short-term earnings pressure has partially eased, but signs of earnings stabilization in the second half of 2026 warrant close monitoring. If IP diversification and globalization proceed smoothly over the medium term, valuations could recover from the current 11x range to 15–19x (corresponding to 2026–2027 P/E ratios). For the industry, validating IP platformization capabilities will serve as a critical turning point in determining valuations for trendy toy companies.
Risks
- Supply chain shortages affecting product deliveries
- Resale markups causing loss of genuine consumers
- Pressure from shareholder sales
- IP counterfeiting or reputational risks
- Failure to renew IP licenses
- Inefficient capital allocation
- Intensified industry competition
- Offline foot traffic impacted by pandemics and other disruptions
What to watch
- Whether earnings stabilize in the second half of 2026
- Progress in developing new IPs and their contribution share
- Speed of overseas store expansion and per-store revenue
- Changes in online GMV growth rates, particularly on platforms like Douyin