Pop Mart's 1H26 results and guidance missed expectations, with transition pains offset by a valuation cushion

Overview

The report reviews Pop Mart's 1H26 results and assesses its growth, profitability, and valuation during its 2026 transition and restructuring phase. BofA Securities believes the domestic business and IP portfolio are improving, but overseas weakness, cost investments, and a high base have reduced near-term earnings visibility, prompting substantial forecast cuts while maintaining a Neutral rating.

Core views

1H26 results missed expectations, with a clearly divergent growth mix. Revenue increased 23.8% YoY to RMB17.173bn, below investors' prior growth expectations of more than 30%; adjusted net profit was approximately RMB5.2bn, up 9.5% YoY and only slightly above the low end of market expectations of approximately RMB5bn. Revenue in China increased 47.3%, while the EU and other regions grew 5.9%, but Asia-Pacific and the Americas declined 11.1% and 16.5%, respectively. Overseas revenue fell approximately 11% overall, overseas online channels declined a further 44%, and the overseas revenue contribution dropped to 29%. Store expansion continued: China added a net 10 stores to reach 455, while overseas markets added a net 36 stores to reach 221, but the additional stores have yet to translate into corresponding overseas revenue growth. Profitability was affected by both the revenue mix and costs. The 1H26 gross margin declined 67bp to 69.7%, which the report attributed to changes in the overseas sales mix and unfavorable raw material costs; operating leverage reduced the selling and administrative expense ratio by 27bp to 28.3%. Operating profit increased 11.3%, with an operating margin of 39.2%, significantly lagging revenue growth; the adjusted net margin was 30%. Regional profit performance diverged further, with segment margins in China and overseas markets changing by 4.9 and -13.8 percentage points YoY, respectively, highlighting the continued investment and operating pressures during overseas expansion. The report expects 2H26 to be more challenging than the first half. Supply shortages last year created constrained supply and pent-up demand release, resulting in a high 3Q base that could weaken sequential sentiment; overseas store openings, supply-chain development, and other general and administrative expenses will raise operating expenditure; and weak domestic consumer sentiment could also slow momentum in the China business. Management continues to regard 2026 as a transition year, prioritizing growth quality over speed. The report believes the previous full-year growth guidance of approximately 20% is subject to downside risk and expects 2H26 net profit to decline 36% YoY. Meanwhile, several positive changes have emerged in business quality. The Monsters, including Labubu, accounted for 26% of revenue, down from 38% in FY25, reducing single-IP concentration; other major IPs, such as Twinkle Twinkle, continued to deliver strong growth. Offline channels were also relatively resilient, with domestic and overseas offline revenue increasing 35% and 21%, respectively, in 1H26, while operating margins remained solid. The report therefore concludes that consolidation across channels, supply chains, and local operations will still take time, but IP portfolio diversification and offline operating performance indicate that the company's adjustment is moving in the right direction. Following the results and guidance miss, BofA Securities cut its adjusted EPS forecasts for 2026/27 by 22% and 24%, respectively, with 2026E reduced from RMB10.20 to RMB7.99, 2027E from RMB12.22 to RMB9.35, and 2028E from RMB14.49 to RMB10.89. The main forecast table projects revenue of RMB38.902bn, RMB44.631bn, and RMB50.130bn for 2026—2028, respectively, and adjusted net profit of RMB10.654bn, RMB12.469bn, and RMB14.513bn; the corresponding YoY EPS changes are -19.0%, +17.0%, and +16.4%. Given the very high FY25 profit base, the report expects only a single-digit CAGR in adjusted net profit from FY25 to FY28. Financial forecasts still indicate a strong cash position: 2026E operating cash flow, free cash flow, and cash equivalents are projected at RMB14.842bn, RMB12.469bn, and RMB26.926bn, respectively, with net debt of -RMB24.065bn. The target price was lowered by 4% from HKD160 to HKD153, with the valuation anchor rolled forward to average 2026/27 earnings. The target price is calculated using a 50/50 weighting of P/E and DCF: the P/E component is HKD138.7, based on 15x average 2026/27E earnings, a 38% discount to the company's three-year average of 24x to reflect limited growth visibility; the DCF component is HKD167.3, based on a WACC of 10.6%, a risk-free rate of 3%, a market risk premium of 9.0%, a beta of 0.84x, and a perpetual growth rate of 3%. The report text states that the stock trades at approximately 13x 2026E earnings, near a historical low, while a chart separately shows a forward P/E of approximately 11x, below one standard deviation from the historical average. The share price has declined 43% from its February peak and underperformed the MSCI China Index by 31%, while the HKD153 target price is broadly in line with the report price of HKD153.70. The report therefore considers the current valuation broadly fair. Downside cushions include planned share buybacks of RMB2bn to RMB5bn over the next six months, equivalent to approximately 1.1% to 2.8% of market capitalization; stronger hedging is expected to mitigate FX impacts after an FX loss of approximately RMB700mn in 1H26; and prominent investor Mr. Duan's stake increased to 7.7%, potentially supporting sentiment. Balancing near-term growth pains against the long-term business outlook, BofA Securities maintains its Neutral rating and describes the risk-reward as relatively balanced.

Analysis framework

The report first compares actual 1H26 revenue and profit with investor expectations and the low end of market expectations, then analyzes the differences by region, online and offline channels, stores, IP portfolio, and margins. It subsequently assesses the impact of the high second-half base, overseas investment, and domestic consumption momentum on earnings and revises its 2026—2028 forecasts accordingly. Finally, it determines the target price using a blended methodology that assigns 50% each to P/E and DCF, incorporating share buybacks, FX hedging, the balance sheet, and changes in shareholder positions into its risk-reward assessment.

Methodology notes

• Valuation MethodPE/PEG valuation

  Valuation based on average 2026/27E P/E

  The report uses average 2026/27 earnings as the rolling valuation anchor and applies a 15x P/E to derive a valuation of HKD138.7; this multiple is 38% below the three-year average of 24x to reflect limited growth visibility.

• Valuation MethodDCF

  Discounted cash flow valuation

  The report discounts future cash flows to present value, using a weighted average cost of capital of 10.6%, a risk-free rate of 3%, a market risk premium of 9.0%, a beta of 0.84x, and a perpetual growth rate of 3%, deriving a valuation of HKD167.3.

• Valuation Method

  Blended valuation with P/E and DCF each weighted at 50%

  The report assigns equal weight to the P/E valuation of HKD138.7 and the DCF valuation of HKD167.3, deriving a target price of HKD153 to reflect both market-comparable valuation and long-term cash flow value.

• Corporate Fundamentals and Financial Framework

  iQmethod standard indicator framework

  BofA's iQmethod organizes income statement, balance sheet, cash flow, and forecast data under a unified framework covering business performance, earnings quality, and validation metrics. The report uses it to present indicators including returns on capital, margins, cash realization, and net debt ratios.

Asset mapping & comparison

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

• Pop Mart（9992.HK／POPMF）

  The Hong Kong-listed designer toy company directly covered by the report; Neutral rating maintained with a target price of HKD153.

  Strengths

  China market revenue grew 47.3%, while domestic and overseas offline channels grew 35% and 21%, respectively; the IP portfolio is becoming more diversified, balance sheet and cash flow forecasts are strong, and the company plans to conduct share buybacks.

  Weaknesses

  Overseas revenue declined approximately 11% overall, while overseas online channels fell 44%; overseas expansion expenses, raw material costs, a high second-half base, and slowing domestic consumption momentum weigh on near-term earnings.

  Comparison

  The share price has declined 43% from its February peak and underperformed the MSCI China Index by 31%; the 15x valuation anchor represents a 38% discount to the company's three-year average of 24x.

  Risks

  Product life cycles, IP licensing, overseas operational ramp-up, reliance on third-party manufacturing, intensifying competition, and key-person risk.

Key data

• 1H26 RevenueRMB17,173mn，+23.8% YoYBelow investors' growth expectations of more than 30%.
• 1H26 Adjusted Net ProfitApproximately RMB5.2bn，+9.5% YoYClose to the low end of market expectations of approximately RMB5bn.
• China Market Revenue Growth+47.3% YoYThe main source of growth in 1H26.
• Overseas Revenue PerformanceApproximately -11% overall；APAC -11.1%，America -16.5%，EU and other regions +5.9%The overseas revenue contribution declined to 29%, while overseas online channels fell 44%.
• 1H26 Gross Margin69.7%，-67bp YoYAffected by changes in the sales mix and unfavorable raw material costs.
• 1H26 Operating Margin39.2%Operating profit increased 11.3% YoY.
• The Monsters Revenue Contribution26%Down from 38% in FY25, indicating lower IP concentration.
• Offline Channel GrowthDomestic +35%，overseas +21%Offline channels remained resilient with solid margins in 1H26.
• EPS Forecast Revisions2026E -22%，2027E -24%Current forecasts are RMB7.99 and RMB9.35, respectively; 2028E was reduced from RMB14.49 to RMB10.89.
• Target Price RevisionHKD160.00 reduced to HKD153.00Lowered by 4%, with a report price of HKD153.70.
• Valuation ComponentsP/E valuation HKD138.7；DCF valuation HKD167.3The two methodologies are each weighted at 50%.
• Share Price PerformanceDown 43% from the February peakUnderperformed the MSCI China Index by 31% over the same period.
• Planned Share BuybacksRMB2bn—5bn over the next six monthsEquivalent to approximately 1.1%—2.8% of market capitalization.
• 1H26 FX LossApproximately RMB700mnThe report expects stronger hedging to mitigate FX headwinds in 2H26.

Impact & implications

The report believes Pop Mart is shifting from rapid expansion toward quality-driven consolidation across channels, supply chains, local operations, and its IP portfolio. The domestic and offline businesses remain resilient, and IP concentration is declining, but weaker overseas revenue and margins, a high second-half base, and additional operating expenses have reduced near-term earnings visibility. Earnings forecasts and valuation have already been significantly revised downward, while the share-price correction, net cash position, share buybacks, and easing FX headwinds provide some support. Consequently, the target price is close to the current price, and the risk-reward is assessed as balanced.

Risks

• Product life cycles may be more difficult to predict than expected, resulting in errors in demand and inventory assessments.
• The company may be unable to maintain important IP licensing agreements.
• Cultural differences may cause the overseas business to take longer than expected to reach mature operating levels.
• The company may lose access to third-party OEM production facilities or services.
• Competition in the designer toy industry may intensify rapidly.
• The loss of key personnel may affect IP operations and business execution.
• The US and EU markets may slow, while channel, supply-chain, and local operating issues may also take longer to resolve.
• The overseas business mix and raw material prices may continue to pressure margins.

What to watch

• Monitor 2H26 growth and profit performance against the high base, and whether the previous full-year growth guidance of approximately 20% comes under further pressure.
• Monitor whether growth in the China market slows as consumer sentiment weakens.
• Monitor whether overseas online channels can recover from the 44% decline in 1H26, as well as the pace of revenue and profit ramp-up at new stores.
• Monitor the impact of overseas store openings, supply-chain development, and general and administrative expenses on operating margins.
• Monitor whether other IPs, such as Twinkle Twinkle, can sustain growth as The Monsters' revenue contribution declines.
• Monitor the actual execution of the planned RMB2bn to RMB5bn share buybacks over the next six months and whether stronger hedging can mitigate FX headwinds.