Deutsche Bank Maintains Sell Rating on Pop Mart, Believing Weak Demand and Earnings Downgrade Risks Are Not Yet Fully Priced In

Overview

Deutsche Bank believes Pop Mart is entering a downward cycle in IP demand. Although strong Chinese New Year sales in China supported 1H26 performance, operating trends in June and July indicate a clear weakening in China online demand; new products have failed to replicate the previous scarcity and social-media buzz. The report expects revenue growth, gross margin, and operating leverage to come under pressure in 2H26.

Core views

The core view is that the market has not fully priced in the risks of rapid sales deceleration, rising inventory pressure, and operating deleveraging caused by declining same-store sales. The report believes collectible IPs are cyclical, and once a brand enters a downcycle, the likelihood of reversing the trend in the near term is limited. Duan Yong Ping's shareholding and the stability of southbound capital flows may support market sentiment, but are insufficient to change the fundamental pressure.

Analysis framework

The report combines Moojing's tracking data for China e-commerce sales on Tmall, Taobao, and Douyin; the performance of new products on social media and in secondary trading markets; regional and channel revenue forecasts; and DCF valuation cross-checked against P/E valuation to derive its target price.

Methodology notes

• Valuation methodsDiscounted Cash Flow Method

  DCF Valuation

  The valuation uses a 2% risk-free rate, 1.1 beta, 6% equity risk premium, and 7.9% weighted average cost of capital; the DCF target price implies 14x 2026 P/E.

• Valuation methodsP/E Cross-Check

  P/E Cross-Check

  The P/E method is used to assess the reasonableness of the DCF valuation result.

• Operating TrackingE-commerce Sales Tracking

  China Online GMV and Growth Tracking

  Moojing data are used to track sales on Tmall, Taobao, and Douyin to assess marginal changes in domestic demand.

Asset mapping & comparison

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

• Pop Mart（9992.HK）

  Core Coverage Name

  Strengths

  Possesses strong proprietary IP development capabilities, a global retail network, and a high proportion of proprietary product revenue; The Monsters (LABUBU) has global recognition.

  Weaknesses

  Sales performance is highly sensitive to the popularity and scarcity of flagship IPs; domestic online sales are weakening, social-media discussion of new products is declining, and earnings are vulnerable to operating deleveraging.

  Comparison

  The report notes that Pop Mart's recent performance has lagged some Chinese IP retail peers that have remained relatively stable.

  Risks

  A faster-than-expected recovery in sales of existing IPs, earlier launches of new blockbuster IPs, and significant progress in the Labubu film and innovative product categories could all create upside risks.

Key data

• July China Online Sales YoY Growth-21%Sales still declined YoY despite the launch of new Labubu 4.0, Dimoo, and Skullpanda products during the month.
• 1H26 Revenue ForecastRMB18.2bn, up 32% YoYThe report expects interim results to be released on August 20.
• 1H26 Adjusted Net Profit ForecastRMB6.0bn, up 27% YoYDeutsche Bank estimate.
• 2Q26 Revenue ForecastRMB8.3bn, up 1.6% YoY and down 16.3% QoQIndicates a marked slowdown in quarterly growth.
• 2H26 Revenue ForecastRMB16.8bnExpected to be below 1H26 and not to follow the usual seasonal strengthening trend.
• FY26 Revenue ForecastRMB35.0bn, down 6% YoYBelow market expectations for continued growth.
• FY26 Adjusted Net Profit ForecastRMB11.4bn, down 13% YoYApproximately 20% below Bloomberg consensus of RMB14.3bn.
• Target Price and Current PriceHK$140.00 / HK$154.10The target price implies approximately 9.2% downside from the current price on the report date.

Impact & implications

If weak China online sales persist and overseas markets do not improve, Pop Mart's full-year revenue and profit forecasts may face further downward revisions. Slowing sales would weaken scale benefits and increase inventory risks, potentially placing valuation under reassessment pressure. In the near term, investors should focus on management commentary during the earnings call regarding full-year guidance, overseas operating trends, inventory, and margins.

Risks

• Sales momentum for existing IPs in global markets is stronger than expected.
• The company launches a new blockbuster IP earlier than expected.
• The Labubu film and other innovative product categories make strong progress.
• Shareholding support from southbound capital and significant long-term investors may ease market-sentiment pressure, but does not mean fundamental risks have disappeared.

What to watch

• August 20 interim results and management's update to FY26 guidance.
• Whether China online sales can stabilize and recover after August.
• Changes in overseas-market revenue, margins, and operating leverage.
• Inventory levels and potential pressure from discounted sales.
• Social-media discussion, sell-through speed, and secondary-market prices for Labubu 4.0 and other new products.
• Changes in southbound capital holdings and holdings related to Duan Yong Ping.