Morgan Stanley lowers Pop Mart target price to HK$247 but maintains Overweight rating

Overview

This is a rating and earnings-forecast revision report on Pop Mart International Group (9992.HK). Morgan Stanley believes that ahead of the 2026 first-quarter update, market expectations had become broadly pessimistic, so the market reaction to the company cutting sales guidance by 5%-10% may be limited. The report’s core adjustment comes from cooling overseas social media attention, especially around Labubu, leading to downward revisions to overseas online sales and margin assumptions.

Core views

The report maintains an Overweight rating but cuts the target price from HK$278 to HK$247. Morgan Stanley believes Pop Mart’s overseas business has not been fundamentally invalidated; it is digesting weaker social media exposure. As overseas store coverage expands, the company still has the opportunity for shoppers to be converted into fans through stores when the next wave of social buzz returns. The China market, with higher store penetration, remains resilient and is expected to keep strong growth in 2026, providing key support against overseas volatility.

Analysis framework

The report re-runs its 2026-2028 revenue, EPS, and target price estimates by adjusting assumptions on overseas sales, online and offline channels, gross margin, SG&A expense ratio, and net margin from the top down. It then evaluates risk-reward through base, bull, and bear scenarios. Valuation uses 2026e P/E and incorporates PEG, EPS CAGR, overseas sequential sales trends, and social media heat changes to judge stock catalysts.

Methodology notes

• Earnings forecastMorgan Stanley ModelWare

  Revenue, margin, EPS, and cash flow forecasts based on the Morgan Stanley ModelWare framework

  The report states that unless otherwise indicated, all metrics are based on the Morgan Stanley ModelWare framework, and 2026-2028 forecasts for revenue, gross margin, SG&A expense ratio, net margin, and EPS are used as the valuation foundation.

• Valuation methodsP/E and PEG valuation

  Assessing target price with 2026e expected P/E and 2025-2027 EPS CAGR-based PEG

  The base case applies 23x 2026e expected P/E, implying about 2.5x PEG; the bull case applies 28x 2026e expected P/E, and the bear case applies 14x 2026e expected P/E.

• Scenario analysisRisk reward scenario analysis

  Measuring upside and downside space using base, bull, and bear target prices

  The base-case target is HK$247, bull case HK$361, and bear case HK$117, indicating an upside-skewed risk-reward profile versus the current price of HK$168.10.

Asset mapping & comparison

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

• Pop Mart International Group (9992.HK)

  Coverned company; maintains Overweight rating and lowers target price

  Strengths

  China market growth remains strong, the IP product flywheel and DTC model are effective, and overseas store expansion helps build a fan base and repeat-purchase customers.

  Weaknesses

  Cooling overseas social media momentum pressures online sales, while overseas operating deleveraging weighs on SG&A expense ratio and net margin.

  Comparison

  The report compares Pop Mart’s long-term path to a combination of Sanrio, Bandai Namco, LEGO, and Disney, but considers it still in an early stage versus the broader global IP product market.

  Risks

  Weaker macro backdrop, insufficient momentum from new products and IPs, overseas expansion falling short of expectations, trade frictions, and IP life cycles shorter than expected.

• Overseas business

  The main source of earnings forecast downgrades

  Strengths

  The number of stores is expected to increase from 185 in 2025 to 270 in 2026, and repeat-purchase customers represent a higher share in offline channels.

  Weaknesses

  Overseas sales are expected to decline 1% in 2026, overseas online sales are expected to fall about 30% year-on-year, and the decline in social media heat is clearly impactful.

  Comparison

  Overseas business is weaker than China in the near term, but the report expects that as store coverage rises, conversion efficiency may improve when social buzz rises again.

  Risks

  Overseas social exposure continues to fall, U.S. GMV faces year-on-year pressure, and organizational and store expansion costs exceed expectations.

• China business

  Core supporting market

  Strengths

  Sales are expected to grow 23% in 2026; higher store penetration, and scale effects help maintain strong gross margin.

  Weaknesses

  If the consumption environment weakens or fashion-toy life cycles shorten, China growth could also come in below expectations.

  Comparison

  Compared with overseas, China is viewed as a more stable and resilient source of growth in 2026.

  Risks

  Consumption slowdown, declining IP appeal, and underperformance of new products.

Key data

• RatingOverweightSector view is In-Line.
• Target priceHK$247.00Cut by 11% from HK$278.00.
• Current stock priceHK$168.10Closing price date is 2026-05-08.
• Target-price upside47%Based on target price HK$247 and current price HK$168.10.
• 2026-2028 revenue forecast revisionsDown 9%/10%/10%Mainly driven by reduced assumptions for overseas markets.
• 2026-2028 revenue growth forecast13%/18%/16%Lower than Pop Mart's 2026 target of around 20%, but above some bearish expectations.
• Overseas sales forecastDown 1% in 2026Overseas online sales are expected to fall about 30% year-on-year, while offline channels are supported by repeat customers and store expansion.
• China sales forecast23% growth in 2026The report keeps the China sales forecast unchanged.
• 2026 Q1 sales forecastGroup growth of 60%-65%Greater China around 70%, overseas 40%-50%.
• Gross margin forecast70.8%/70.8%/70.9% for 2026-2028Gross margin in 2026 is expected to be down 1.3 percentage points year-on-year to 70.8%.
• SG&A expense ratio forecast30.1%/30.7%/31.2% for 2026-2028Mainly reflects overseas operating deleveraging.
• Adjusted net margin forecast31.6%/31.1%/30.8% for 2026-2028Margins are pressured by slower overseas sales and rising expenses.
• Base-case valuation23x 2026e P/E, HK$247Target P/E unchanged.
• Bull-case valuation28x 2026e P/E, HK$361Assumes 2026e EPS is 19% above the base case.
• Bear-case valuation14x 2026e P/E, HK$117Assumes 2026e EPS is 23% below the base case.

Impact & implications

In the short term, market focus on 2026 year-on-year sales pressure and overseas online weakness will still weigh on sentiment, but the report believes pessimism is already largely reflected. The key determinant of future share performance will be the sequential trend over the coming quarters. If overseas sales stabilize or rebound around Q3, combined with U.S. tariff reductions, easier price cuts being accepted by consumers, and a larger repeat customer base from offline store expansion, Pop Mart has a chance to regain valuation recovery.

Risks

• Overseas social media heat and Labubu popularity continue to cool, causing sales recovery to be slower than expected.
• Overseas online sales decline by more than expected, and offline store expansion does not fully convert to repeat customers.
• Consumption conditions in China and overseas weaken.
• New products, new IPs, or new business initiatives fail to materialize as expected, and the trend-toy life cycle is shorter than expected.
• Overseas expansion costs, SG&A expense ratio, and inventory pressure come in higher than expected, dragging on margins.
• Trade tensions or tariff changes increase cost and pricing uncertainty.

What to watch

• Whether Q1 2026 sales updates for the group, Greater China, and overseas align with 60%-65%, around 70%, and 40%-50%.
• Quarter-on-quarter sales trends in Q2, Q3, and Q4, especially whether overseas sales are expected to begin stabilizing or rebounding in Q3.
• Overseas online GMV monthly trends and whether U.S. credit-card data show a narrowing of the slowdown.
• Overseas store expansion progress, especially whether the 2026 store count can reach close to the 270-store assumption.
• Whether U.S. tariffs fall from 30%-40% in 2025 to 5%-10%, and the actual impact of price cuts on gross margin.
• Whether sales and gross margin in China can remain strong.