Maintain Overweight: Overseas Reset Weighs on Near-Term Growth, While China Provides Earnings Support

Overview

This report provides a preview of Pop Mart's 1H26 results. Morgan Stanley believes the market has formed bearish expectations due to slowing high-frequency overseas sales, and the share price may remain range-bound around the results. Although overseas online sales face significant high-base pressure in 2026, the bank maintains its Overweight rating, believing that the China business can offset most of the near-term overseas decline and that overseas operations may return to growth in 2027 after completing an online-demand reset.

Core views

The bank expects new China offline flagship stores, online Pop Draw, and the Tmall channel to support demand, with China revenue projected to grow 52% year-on-year in 1H26. Overseas weakness is concentrated mainly in online channels and a decline in social-media-driven demand for Labubu, while demand generated by offline stores, pop-up stores, regional-exclusive products, and cultural collaborations is more sustainable. Bearish investor positioning, high stock-borrowing costs, and DYP trading activity may shorten short-position holding periods, but do not constitute a fundamental valuation floor. The key to a valuation rerating is whether overseas sales can stabilize sequentially and recover after social-media buzz fades.

Analysis framework

The report uses the Morgan Stanley ModelWare forecasting framework, incorporating regional and channel revenue splits, store productivity, gross margin, SG&A expense ratios, scenario valuation, and market-positioning analysis to assess 1H26 results and the earnings trajectory from 2026 to 2028.

Methodology notes

• Earnings ForecastingMorgan Stanley ModelWare

  Financial Forecasting Model

  Forecasts company financial performance based on assumptions for revenue, margins, expense ratios, and regional channels, and compares it with market consensus expectations.

• Valuation methodsP/E Scenario Valuation

  2027E P/E

  The base case uses 21x 2027E P/E; the bull and bear cases use 23x and 14x, respectively.

• Market TechnicalsPositioning and Short-Interest Analysis

  Bearish Positioning

  Assesses the balance of share-price risk-reward around earnings through investor positioning, stock-borrowing costs, and major-shareholder trading activity.

Asset mapping & comparison

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

• Pop Mart International Group (9992.HK)

  Directly Covered Company

  Strengths

  China market growth, strong cash flow, IP operating capabilities, offline store expansion, and expected 13% earnings CAGR from 2026 to 2028.

  Weaknesses

  Overseas online sales are sensitive to social-media buzz; rising overseas fixed costs are causing operating-leverage reversal; 2026 revenue growth is expected to be only 1%.

  Comparison

  The company is viewed as a global IP consumer brand with the potential to combine characteristics of Sanrio, Bandai Namco, LEGO, and Disney, although its overseas business remains in a demand-reset period.

  Risks

  Weaker macro consumption, shorter-lived popularity of IP and new products, overseas expansion falling short of expectations, trade tensions, and elevated retail-investor expectations.

Key data

• 1H26 Revenue ForecastRmb17.9 billion, up 29% year-on-yearChina growth is expected to offset most of the overseas decline.
• 1H26 Net Profit ForecastRmb5.4 billion, up 18% year-on-yearNet margin is expected to be 30.3%.
• 2026 Revenue ForecastRmb37.563 billion, up 1% year-on-yearCut by 10% from the previous forecast.
• 2026 Net Profit ForecastRmb11.074 billion, down 13% year-on-yearAdjusted net margin is forecast at 29.5%.
• 2026 Overseas Revenue ForecastRmb11.9 billion, down 27% year-on-yearThe decline is almost entirely from online channels.
• 2027 Overseas Revenue ForecastUp 24% year-on-yearExpected to be driven by a larger offline customer base and improved localized operations.
• Target PriceHK$214.00Cut from HK$247; the base case uses 21x 2027E P/E.

Impact & implications

In the near term, the market will focus on China offline and online sales, store productivity in the United States and Europe, overseas cost control, and gross-margin performance. If data show that overseas weakness is confined to high-base online Labubu demand while offline expansion remains effective, low market expectations could lead to a valuation recovery. Over the medium to long term, North America and Europe account for approximately 75% of global IP collectibles consumption, providing a long growth runway for the company's overseas offline network and brand penetration.

Risks

• China and overseas consumer environments are weaker than expected.
• IP, new products, or new series fail to maintain appeal, and the designer-toy lifecycle is shorter than expected.
• The decline in overseas online demand exceeds expectations and cannot be offset by offline store growth.
• Execution of overseas store expansion, inventory integration, and membership-system development falls short of expectations.
• Costs grow too quickly during the overseas-sales downturn, putting further pressure on margins.
• Trade tensions and higher logistics costs affect overseas operations.

What to watch

• Whether 1H26 China offline sales exceed the approximately 35% year-on-year growth assumption.
• Whether China online sales can maintain strong growth, and whether weakness on Douyin is offset by Pop Draw and Tmall.
• Whether declines in per-store sales in the United States and Europe are smaller than model assumptions.
• Changes in overseas gross margin, SG&A expense ratio, and inventory pressure.
• Management guidance on 2H26 sales, the overseas online reset, and the 2027 recovery.
• Progress on plans to add more than 40 stores in the United States, global inventory coordination, overseas membership systems, and the Pop Now channel.