The market is overly focused on the so-called "North American market high-frequency data," Morgan Stanley: POP MART is undervalued

Morgan Stanley believes that the market is overly focused on the high-frequency sales data of POP MART in the North American market, seriously underestimating the company's true value.

According to a report from the trading desk, on January 5th, the research team led by Dustin Wei at Morgan Stanley published a report pointing out that the market's pessimistic expectations for POP MART's North American business are seriously misaligned. Investors are overly reliant on unverifiable credit card consumption data while neglecting POP MART's strong growth momentum in China and the Asian market.

The market estimates that North American sales will drop to RMB 6 billion in 2025 based on credit card data, while Morgan Stanley expects it to be RMB 7.1 billion. More importantly, the report suggests that investors are overly focused on the North American market and the single IP of Labubu, while the company's fundamentals in China and the Asia-Pacific region remain strong, and the growth of non-Labubu IP products is rapid.

Morgan Stanley expects a profit growth of 21% in 2026. If the company can achieve a quarter-on-quarter growth of about 10%, sales will reach Morgan Stanley's most optimistic forecast—RMB 60 billion in sales and RMB 19.8 billion in net profit, which implies an expected profit growth of 45-50%. Once POP MART begins to show clear quarter-on-quarter growth, the stock price will respond positively.

North American Sales Expectations May Be Too Low

Widely circulated credit card consumption data indicates that POP MART's North American sales will only be around RMB 6 billion in 2025.

These data show that North American sales in the fourth quarter of 2025 are expected to decline by 25-30% compared to the third quarter, and the market has extrapolated this trend into 2026, pricing in a sales decline in the North American market.

However, Morgan Stanley's analysis predicts that POP MART's North American sales in 2025 will be RMB 7.1 billion, with fourth-quarter sales close to those of the third quarter.

Morgan Stanley expects a quarter-on-quarter decline in online sales in the fourth quarter, while offline sales will see significant quarter-on-quarter growth. Analysts believe that due to increased supply and more new product launches, non-Labubu products will become a stronger driving force in the fourth quarter.

Morgan Stanley estimates that the average annual sales per square meter of North American stores will reach RMB 45-50 million, higher in the second half than in the first half. This means that new stores can recover their investment in 1-2 months, much faster than most retail businesses in the United States, indicating extremely strong demand.

Online Selling Hot Products, Offline Cultivating Loyal Fans, Future Advantages Focused on Asia-Pacific

In the first half of the year, online sales accounted for about 60% of POP MART's North American market, further rising to 60-70% in the third quarter driven by Labubu pre-sales.

The report points out that the IP distribution of offline sales is much more diversified than that of online channels. In the trendy toy sector, the visual appeal of physical products is superior to online browsing. Consumers spend more time in stores, enhancing opportunities for new IP exploration and cross-selling.

Additionally, POP MART's experience in China and the Asia-Pacific region indicates that physical stores are the foundation for cultivating repeat customers, whose purchasing behavior is more stable than that of internet trend followers influenced by social media.

From a broader perspective, analysts believe that the market is overly emphasizing the North American market while neglecting POP MART's advantages in China and the Asia-Pacific region. The company has established strong consumer engagement and brand equity in these regions, with increased supply of popular products and the launch of new IPs/new designs receiving positive consumer feedback, driving sustained strong business performance.

Morgan Stanley believes that the overall profit momentum of the group in 2026 will become a stronger stock price driver than the North American market or Labubu.

New Year Growth Data and IP Diversification Strategy Will Boost Expectations

Morgan Stanley believes the market has overlooked that Pop Mart will be selling older Labubu plush toys in the second half of 2025, with more new products to be launched in 2026.

Additionally, 2025 marks the first year of Pop Mart's popularity in the United States, and there will be more growth initiatives in the future to develop IP and attract consumers.

The research report indicates that evidence of recovering quarter-on-quarter growth and IP diversification are two important catalysts for improving market sentiment.

The report points out that the company's sales in the second and third quarters of 2025 will grow approximately 50% quarter-on-quarter, creating a very high base. Therefore, a slowdown in quarter-on-quarter growth from the fourth quarter to the first quarter of 2026 is a normal phenomenon. Morgan Stanley expects that the acceleration of quarter-on-quarter growth in the second and third quarters of 2026 will be driven by continued store openings, new customer acquisition, and new product launches, which will enhance market expectations for 2027.

If Pop Mart can achieve a steady quarter-on-quarter growth of 5-10% in the first quarter with a balanced regional structure, Morgan Stanley points out that the current sales forecast for 2026 (48 billion yuan, a year-on-year increase of 26%) may be conservative.

In terms of IP diversification, the market will increasingly recognize the strength of non-Labubu IPs in 2026. The company stated that the top five IPs in group sales rank among the top five in four regions. However, in the long term, Morgan Stanley believes that IP preferences will differ across regions.

For example, Twinkle Twinkle is expected to exceed 50% of Labubu's scale in the Chinese market in 2026. Additionally, Hirono, Hacipupu, and Nyota have gained more attention in overseas markets than in the Chinese market.

Long-term Investment Logic, Global IP Collectibles Platform

The research report indicates that Pop Mart seems to be well-prepared to capture the growing demand for "kidult" IP products globally.

Analysts believe that Pop Mart is evolving into a global IP collectibles platform, integrating Sanrio's design-driven IP, Bandai Namco's product development, LEGO's design-led repeatable product system, and Disney's experience/media franchise building model.

Moreover, Pop Mart's business model is asset-light and has a high ROE, achieving long-term high-quality return compound growth while leading and shaping the global kidult trend.

At the current valuation, Pop Mart is trading at approximately 16 times the 2026 price-to-earnings ratio, corresponding to a 21% profit growth expectation. If the company achieves Morgan Stanley's most optimistic expectation—sales reaching 60 billion yuan in 2026, the valuation would only be 12 times, with profit growth as high as 45-50%