Pop Mart: A Deep Long-Term Value Study

What does the cost structure look like? [Fact] Breaking down 2025 expenses by nature, the core items include: cost of inventories RMB 8.51 billion, staff costs RMB 2.25 billion, commission and e-commerce platform service fees RMB 1.44 billion, advertising and marketing RMB 1.19 billion, logistics RMB 2.04 billion, licensing fees RMB 833 million, depreciation of property and equipment RMB 398 million, depreciation of right-of-use assets RMB 593 million, amortization of intangible assets RMB 127 million, and short-term/variable lease expenses RMB 1.338 billion. This structure shows it is not an asset-heavy manufacturer; it looks more like "a high-margin brand/IP company plus non-trivial channel and fulfillment costs."

What does it depend on? There are three kinds of dependencies. First, blockbuster IP and artist supply. In 2025 THE MONSTERS generated RMB 14.16 billion of revenue, 38.1% of the total, up 365.7% year over year; at the same time, 6 IPs exceeded RMB 2 billion and 17 IPs exceeded RMB 100 million, showing the company has more than one IP, yet the pattern of "one super-IP leading the way" is very pronounced. Second, third-party manufacturers and the supply chain. The top five suppliers account for 63.5% of procurement, and the largest supplier accounts for 34.6%; supplier concentration is not low. Third, channel and content cadence. Overseas expansion is fast and revenue growth is fast, but inventory and operating complexity rise in step. In 2025 inventory climbed from RMB 1.52 billion to RMB 5.47 billion, and days inventory rose from 102 days to 123 days.

If the stock market closed for five years, would I be willing to hold it? [Opinion] At the right price, yes; at the current price, I lean toward watching. The reason is not that the business is poor, but that you have to accept this: what you own is not a "Coca-Cola-style" slow-changing staple, but an IP company that depends on product strength, character lifecycles, the spread of global pop culture, and operating cadence. It can be very profitable, but psychologically you must be able to bear the process in which "when the growth factor weakens, the valuation gets killed first."

Business understandability score: 4/5. The business model is clear and the profit logic is transparent. The genuinely hard part is not "how it makes money" but "how long the blockbuster IP can last, and where the next blockbuster comes from."

Industry Competition and the Moat

From a long-term owner's perspective, Pop Mart sits not in the traditional "toy manufacturing industry" but closer to the crossover zone of character-IP consumer goods, collectibles retail, fan economy, and experiential consumption. The good thing about this industry is that once a strong IP forms, gross margin, brand premium, and cross-category extension are all powerful; the bad thing is that demand exists steadily in aggregate, but for a single company or a single character, it is not inherently stable.

If you draw the direct competitors narrowly, the domestic "designer-toy/blind-box/collectible-toy" rivals include 52TOYS and TOP TOY; if you draw long-term enterprise quality broadly, the truly comparable names are global IP operators like Sanrio and Bandai Namco. Sanrio's advantage is long-lived characters and high-margin licensing, with an FY3/2025 operating margin of 35.8% and ROE of 48.6%; Bandai Namco's Toys & Hobby segment posted FY2025.3 sales of JPY 596.9 billion and segment profit of JPY 102.2 billion, with a broader and more durable IP matrix. Against these companies, Pop Mart grows faster, but its character longevity and the proof that its business model can ride through cycles have a much shorter track record.

Is long-term industry demand stable? [Inference] "Character consumption, collecting, gifting, and emotional spending" themselves exist over the long run; but the heat of any single wave or any single character is cyclical. Pop Mart's 2025 global breakout owed much to the phenomenal popularity of THE MONSTERS/LABUBU. Reuters also reported in May 2026 that the company had warned analysts its 2026 margins would be affected by rising costs, and that as the global LABUBU frenzy begins to cool the company is refocusing on retail standardization and cultural-entertainment expansion. This is a key signal: the company itself knows it cannot treat an extreme boom as a permanent normal.

Moat Assessment

The judgments in the table are based on the company's 2025 regional expansion, channel structure, IP revenue mix, and supply-chain disclosures, alongside the official financials of Sanrio and Bandai for comparison.

Is this moat widening, holding, or narrowing? [Opinion] I think it is "widening overall, but the core stretch of the river increasingly relies on THE MONSTERS for proof." On one hand, the company is no longer just a Chinese designer-toy retailer. In 2025, revenue from China, Asia-Pacific, the Americas, and Europe and other regions reached RMB 20.85 billion, RMB 8.01 billion, RMB 6.81 billion, and RMB 1.45 billion respectively, showing the brand is beginning to replicate across cultures. On the other hand, in 2025 revenue THE MONSTERS alone accounted for 38.1%, which means the "width" of the moat is still largely tied to the persistence of a blockbuster. If in 2027-2028 the company can keep expanding "17 IPs over RMB 100 million" into a "balanced multi-IP matrix," the moat will widen; if it cannot, the river that looks so wide today may just be high tide.

Does it have pricing power? Can it resist inflation? [Inference] It has some pricing power, but not unlimited pricing power. The most direct evidence is that from 2021 to 2025 gross margin rose from 61.4% to 72.1% and operating margin from 25.6% to 45.5%, which simple cost reduction cannot explain; it reflects IP premium, the rising share of proprietary products, and channel-structure optimization. Yet Reuters in May 2026 also disclosed that the company flagged raw-material and new-product costs would pressure margins, which shows its pricing power is real but not as strong as that of luxury goods or tobacco.

Can it stay profitable in a downturn? [Fact] In 2022, under a clearly unfavorable consumption environment, the company still recorded a profit of RMB 476 million. [Opinion] So the answer is "most likely it can stay profitable, but earnings elasticity will be very large." This is not defensive consumption; it is high-end emotional/collectible consumption. Industry attractiveness is above ordinary toy retail but below true consumer staples.

Industry attractiveness score: 3/5. The good is growth, brand, and high gross margin; the average is "blockbuster-driven, unstable lifecycle, hard to coast."

Moat strength score: 3/5. There is a moat already, but not yet strong enough to "hold for ten years with your eyes closed."

Management and Capital Allocation

First, alignment of interests. [Fact] As of December 31, 2025, founder Wang Ning was deemed to hold a total of 654 million shares, about 48.73% of the company's total share capital; he simultaneously serves as executive director, chairman, and chief executive. A major shareholder deeply tied to operating results is usually a plus in a company that "needs to keep creating new content and new characters," because a founder's mindset is often closer to that of an owner than a professional manager.

But governance is not without reservations. [Fact] The company keeps the chairman-and-CEO-combined structure; historically the board's stated rationale was to maintain leadership consistency and decision-making efficiency. For a fast-growing company this arrangement is sometimes more efficient; for long-term shareholders it also means concentration of power. Add a small yellow flag: in 2025 external audit fees were about RMB 5.9 million and non-audit service fees about RMB 5.5 million, a non-trivial ratio; this is not a conclusive problem, but it is worth tracking.

Next, capital allocation. [Fact] The company's dividend policy is to pay out no less than 20% of distributable net profit annually. For 2025 the board proposed a final dividend of RMB 2.3817 per share, totaling about RMB 3.194 billion. This shows management does not intend to keep all cash on the books but is willing, beyond high growth, to return cash to shareholders.

Buybacks reveal the capital-allocation style even more. [Fact] In 2023 the company repurchased a cumulative 19.947 million shares for a total consideration of about HK$371 million, with the buyback range roughly HK$16.40-21.70; with hindsight, this was a clearly value-creating buyback, since the current price is now far above those levels. The company made no buybacks for the full year 2025; but in January 2026 it again repurchased a combined 1.9 million shares across two transactions, at a price range of about HK$177.7-194.9.

My view: [Opinion] The 2023 buyback was beautiful and shows management is not conservative at lows; but the January 2026 buyback at a much higher level had a far less obvious margin of safety. It is not necessarily wrong, but it at least shows management does not act only when prices are "very cheap." For long-term value investors, this pulls the capital-allocation score back from "excellent" to "above-pass."

On share incentives, look at them separately. [Fact] Under the 2025 share award scheme the grantable shares are numerous, but the new shares corresponding to grants made during the year do not require fresh issuance, because they come from previously issued shares held by a trustee; meanwhile employee RSU expense was about RMB 71.6 million and related third-party service-provider expense about RMB 5.025 million. This means incentives exist, but the immediate dilution pressure on current shareholders is relatively contained.

Overall judgment: Management and capital-allocation score: 3/5. The strengths are genuine equity ownership, very strong execution, and getting the early buybacks right; the reservations are governance concentration, the fact that it does not fully embody the value discipline of "buying back only when significantly undervalued," and, as a listed company, a capital-allocation record that is not yet long enough to span a full cycle.

Financial Quality and Owner Earnings

First, the big picture. [Fact] From 2021 to 2025 the company's revenue grew from RMB 4.49 billion to RMB 37.12 billion, a four-year CAGR of about 69.6%; net profit attributable to owners grew from RMB 854 million to RMB 12.776 billion, a four-year CAGR of about 96.6%. Gross margin rose from 61.4% to 72.1% and net margin from 19.0% to 34.4%, showing this is not growth from "just selling more goods" but operating leverage from product mix, channel structure, and IP value rising in tandem.

Below I lay the key metrics flat. In the table, the 2021-2025 revenue, profit, and balance-sheet figures come from the 2025 annual report financial summary; the 2023-2025 operating cash flow and capex come from the 2024 annual report, the 2025 annual report, and the 2023 results announcement. Because the 2021-2022 operating-cash-flow details are incomplete in the materials searchable here, I explicitly mark them "needs additional sources."

Note: ROE is a rough calculation based on average equity of opening and closing balances; disclosed FCF = operating cash flow minus purchases of property, plant, equipment, and intangible assets, excluding the conservative correction for IFRS 16 lease cash flows I make below.

The most important thing in this table is not "very fast growth"-the market already knows that-but three other things. First, the margin improvement is dramatic. After the 2022 trough, operating margin climbed all the way from 12.6% to 45.5%, which reflects IP value but also warns you not to treat 2025 as a permanent normal. Second, the cash flow is broadly real. Operating cash flow in 2023 and 2024 was clearly higher than net profit, showing the accounting profit is not hollow. Third, 2025 begins to show signs of "growth eating cash." Disclosed FCF in 2025 was still as high as RMB 9.69 billion, but already below the RMB 12.78 billion net profit, mainly because inventory, receivables, and overseas expansion tied up more working capital.

Working-capital quality deserves a close watch. [Fact] At the end of 2025, trade receivables rose from RMB 478 million to RMB 921 million, but turnover days fell from 11 days to 7 days, so that pressure is small; what really needs attention is inventory, which rose from RMB 1.52 billion to RMB 5.47 billion, with turnover days up from 102 days to 123 days; trade payables rose from RMB 1.010 billion to RMB 1.858 billion, with turnover days falling from 61 days to 51 days. In other words, to support overseas expansion and a long logistics chain, the company has clearly pushed cash forward into inventory, while supplier credit has not widened in step.

Is the balance sheet safe? [Fact] As of the end of 2025, the company has no bank borrowings, cash and cash equivalents of about RMB 13.775 billion, and a debt-to-asset ratio of 29.4%; net finance income in 2025 was positive, showing the statements are not "leveraged into looking good." From the standpoint of permanent capital loss, financial risk is not the main issue right now.

Owner Earnings Analysis

This needs special note: IFRS 16 makes "operating cash flow minus capex" overstate distributable cash flow, because lease-principal repayment typically falls within financing cash flow. For Pop Mart, which has many retail stores, treating disclosed FCF directly as "owner earnings" would be too optimistic.

I offer a conservative measure: [Fact] 2025 net profit attributable to owners was RMB 12.776 billion; add back the main non-cash expenses, including property and equipment depreciation of RMB 398 million, right-of-use asset depreciation of RMB 593 million, and intangible amortization of RMB 127 million, then consider share-based payment expense; but subtract capex of RMB 1.172 billion and the working capital consumed by growth. The company's 2024 lease-liability cash repayment was about RMB 505 million; given that store and overseas expansion clearly accelerated in 2025, in my conservative estimate I deduct an additional roughly RMB 800 million of lease principal as a correction. This yields conservative owner earnings of about RMB 8.9 billion, more cautious than disclosed FCF.

At the May 19, 2026 share price of HK$152.90, an HKD/CNY rate of 0.8683, and total share capital of 1.3429 billion shares, the company's equity market value is about HK$205.3 billion / RMB 178.3 billion. On this basis, the static P/E is about 14.0x; the disclosed P/FCF is about 18.4x; and the conservative P/Owner-Earnings is about 20x. If you are a Buffett-style owner, what you should really watch are the latter two measures, not the prettiest net-profit measure.

Looking at financial quality overall, my judgment is: Profit is real profit, not pure accounting profit; growth is broadly not capital-heavy, but from 2025 it begins to consume working capital more visibly; there are no clear signs of financial fraud or aggressive accounting, but the cash-flow quality under the inventory and lease lenses needs another one to two reporting periods to verify.

Valuation and Margin of Safety

First, lay out the current valuation. At a share price of HK$152.90, an HKD/CNY rate of 0.8683, end-2025 share capital of 1.3429 billion shares, and 2025 annual-report figures:

• Equity market value of about HK$205.3 billion / RMB 178.3 billion;

• P/E about 14.0x;

• P/B about 8.0x;

• disclosed P/FCF about 18.4x;

• conservative P/Owner-Earnings about 20.0x;

• if you net only cash and cash equivalents and use a "conservative cash measure" for a rough calculation, EV/EBITDA about 9.1x;

• based on the 2025 final dividend of RMB 2.3817 per share, the dividend yield is roughly 1.8%.

If you look only at the static P/E, many people will say: "Not expensive." That statement is only half right. Right, because a 14x P/E on a company whose revenue and profit are still expanding rapidly, with plenty of cash on hand and no bank borrowings, is indeed not absurd. Wrong, because the 2025 profit very likely includes an above-normal blockbuster windfall. If you treat the 2025 margins and THE MONSTERS heat as the normal, the stock looks cheap; if you treat them as a "high-water mark," the stock is not so cheap.

Owner-Earnings Discounting

Below are my three scenario valuations. The valuation base uses conservative owner earnings of RMB 8.9 billion; the reason I use neither the RMB 12.78 billion net profit nor the RMB 9.69 billion disclosed FCF is to leave a buffer for lease cash flows and the unusually high 2025 profitability. All scenarios add no potential fair-value gains on financial assets, so they lean cautious.

These ranges correspond to estimates I made based on 2025 operating data, not prices the market is certain to assign in the future. At about HK$152.90, the current price sits roughly in the lower half of the neutral intrinsic-value range, above the conservative valuation and below the optimistic one, so I cannot call it "cheap"; I can only say it is "not absurd."

Relative Valuation

Placing it alongside several comparables makes it clearer. [Fact] Sanrio currently trades at a trailing P/E of about 21.5x, EV/EBITDA of about 13.2x, P/B of about 8.1x, and an FY3/2025 ROE of 48.6%; Bandai Namco currently trades at a P/E of about 16.6x, P/B of about 2.73x, and EV/EBITDA of about 8.79x; MINISO's trailing P/E is about 14.45x. Across the board, Pop Mart's P/E is not more extreme than Sanrio's or Bandai's, and it is even cheaper than Sanrio; but its P/B is clearly not low, showing the market is mainly pricing in "growth + asset-light + blockbuster-character capability."

The conclusion this comparison gives me is not "it is cheap," but: The market sees Pop Mart as a company in the middle of leaping toward becoming a world-class IP company, so it assigns a valuation higher than traditional retail and not absurd relative to mature IP companies. This also means relative valuation can only show "it is not the most expensive," not "it has a sufficient margin of safety." If 2025 is a peak-profit year, then static P/E naturally flatters the valuation.

Asset or Liquidation Value

This company is not one to buy on liquidation value. [Fact] At the end of 2025, equity attributable to owners was about RMB 22.278 billion, corresponding to book value per share of about RMB 16.6, or roughly HK$19; although the company has ample cash and no bank borrowings, its current market value far exceeds net assets. In other words, when you buy it you are absolutely not buying "cheap assets"; you are buying the "ability to monetize IP at sustained high returns over many future years." If that ability is impaired, the protection book assets offer to the share price is limited.

Final valuation conclusions:

• Conservative intrinsic-value range: HK$100-125

• Fair intrinsic-value range: HK$130-170

• Optimistic intrinsic-value range: HK$180-230

• Current price relative to intrinsic value: rich versus the conservative valuation, near fair versus the neutral valuation, not expensive versus the optimistic valuation

• Required margin of safety: at least 25%-30%, because this is a high-quality but high-volatility IP business

• Ideal Buy Price range: HK$95-120

• Acceptable holding-price range: HK$120-160

• Clearly overvalued price range: above HK$190

[Opinion] So the current price is not "un-buyable," but for a long-term value investor who insists on a margin of safety, it looks more like a name to wait for better odds on than one you must act on immediately.

Risk Comparison and Final Judgment

First, the most important permanent capital-loss risk. First, The Monsters/LABUBU has been so successful that it has actually raised the bar for the future. In 2025 it accounted for 38.1% of revenue; if growth clearly slows over the next two to three years while other IPs fail to take over, the company's margins and valuation could both pull back together. Second, overseas expansion brings inventory and execution risk. In 2025 inventory surged to RMB 5.47 billion and turnover days rose to 123 days; if overseas channel efficiency falls short of expectations, high growth could turn into high inventory. Third, margin-reversion risk. Reuters disclosed in May 2026 that the company flagged that raw-material and product costs would compress margins; if the 45.5% operating margin in 2025 is a high-water mark rather than the normal, then the static valuation is more expensive than it looks. Fourth, supply-chain concentration risk. The top five suppliers account for 63.5% of procurement and the largest for 34.6%; any delivery, quality, or bargaining issue would directly hit gross margin and supply cadence. Fifth, governance and capital-allocation risk. A founder holding a large stake is good, but the chairman/CEO combination means weaker checks and balances; meanwhile the high-price buyback in early 2026 is not typical "deep-value" discipline.

The strongest counterargument is actually simple: "This is not a cash-flow machine that can be easily forecast over the long run, but an IP company at the peak of a super-blockbuster cycle; investors may well mistake a fad for a moat and mistake high prosperity for normal earnings." This bear logic is not absurd. Bears will fix on three things: an overly high Monsters revenue share, overly high 2025 margins, and overly fast inventory growth. If the next two years bring a situation of "revenue still growing, but cash flow and margins clearly weakening," the market's most dangerous reaction to this company will not be short-term volatility but re-pricing it from a "global IP company" back into a "high-volatility designer-toy brand."

Which facts would overturn the investment judgment? If any of the following happens in the future, I will seriously admit my original optimistic part may have been wrong: First, THE MONSTERS' share stays high but its growth clearly stalls, and none of the "17 IPs over RMB 100 million" produces a new super-IP to take over. Second, inventory days keep rising and operating cash flow falls clearly behind net profit for two consecutive years. Third, overseas revenue keeps growing, but same-store efficiency declines and margins fall back quickly, indicating low-quality expansion. Fourth, management starts making high-price acquisitions, frequent high-price buybacks, or shifts share incentives toward significant shareholder dilution.

Placing it alongside other opportunities makes the conclusion more restrained. [Fact] The current U.S. 10-year Treasury yield is about 4.62%; Pop Mart's earnings yield on static net profit is about 7.2%, but on conservative owner earnings only about 5%. In other words, if you use the more conservative figure closer to "cash shareholders can actually take home," this stock's compensation relative to the risk-free rate is not thick.

Compared with the index, my judgment is: If you have no research edge on IP lifecycles, buying Pop Mart at the current price is not clearly better than buying a broad-based index. Its upside comes from continuing to prove it is "the next truly globalized Chinese IP company"; but its downside also comes from "the market suddenly discovering this looks more like one great fad event." So in a highly concentrated portfolio that can hold only 5 assets, it is not yet stable enough today to naturally enter the top five. If the price returns to a more protected level in the future, the answer may change.

Investment Checklist

The above conclusions are based on the earlier comprehensive judgment of IP concentration, inventory, cash flow, governance, and valuation.

Final Investment Conclusion

[Final Rating] Watch

[One-Sentence Investment Thesis] This is an excellent enterprise leaping from a Chinese designer-toy company into a global IP operating platform, but at the current price what you buy is more "proven success" than "sufficiently cheap odds."

[Core Bull Case]

• Overseas revenue is expanding extremely fast; in 2025, the Americas, Europe and other regions, and Asia-Pacific grew 748.4%, 506.3%, and 157.6% year over year, with globalization validated faster than expected.

• The IP matrix is no longer just "a single blind-box brand"; in 2025, 6 IPs earned over RMB 2 billion and 17 IPs over RMB 100 million.

• Proprietary products make up 99.1% of revenue and artist IP 90.0%, showing strong control over the value chain rather than being merely a channel.

• The balance sheet is very healthy: at the end of 2025 there were no bank borrowings and RMB 13.775 billion in cash and cash equivalents.

• The founder holds 48.73%, with interests highly aligned with shareholders.

[Core Bear Case]

• THE MONSTERS, a single IP, contributes 38.1% of revenue, a concentration already high enough to sway market sentiment.

• In 2025 inventory jumped from RMB 1.52 billion to RMB 5.47 billion, with turnover days rising to 123 days, and cash-flow quality beginning to feel pressure.

• For 2026 the company has already flagged cost pressure on margins, and the 2025 margins may not be sustainably reproducible.

• Conservative owner earnings imply a current valuation of about 20x, and the margin of safety is not thick.

• In governance, the founder doubles as chairman/CEO, and the high-price buyback in early 2026 does not reflect strong undervaluation discipline.

[Key Assumptions] For the investment to hold, the following must be true: THE MONSTERS can move from "blockbuster" to "long-lived IP"; SKULLPANDA, CRYBABY, MOLLY, DIMOO, and others can keep taking the baton; overseas direct stores and online channels can settle traffic into stable repeat purchase; and even if the long-term operating margin reverts, it can stay in a range far above an ordinary retail company.

[Fair Buy Price] The more comfortable buying range is HK$95-120. The basis is not a short-term chart but this: this price range roughly corresponds to the lower end of my conservative-to-neutral valuation range and leaves a thicker buffer for the adverse cases of "earnings normalizing downward, inventory releasing, and valuation contracting."

[Target Holding Period] If you buy, you should view it on a holding logic of at least 5-10 years; if you are only betting on the next, hotter wave of LABUBU, you should not dress yourself up as a long-term investor.

[Expected Annualized Return] At the current price of about HK$152.90, the estimates are:

• Conservative scenario: about 2%-4% per year

• Neutral scenario: about 6%-8% per year

• Optimistic scenario: about 10%-12% per year

These returns are not bad, but for a company with large single-IP swings they are not especially enticing either. The core facts supporting these ranges are the current valuation, conservative owner earnings, and my scenario growth assumptions.

[Maximum Loss Risk] If over the next two to three years Monsters/LABUBU cools rapidly, other IPs cannot take over, and margins fall clearly from highs, while the market also marks the valuation down to that of a more ordinary consumer stock, a roughly 50% share-price drawdown is not unimaginable; in a more extreme case, permanent capital loss could reach around 60%. This does not mean the company would go bankrupt; it means "you bought a good company on overly high expectations."

[Tracking Metrics] The things most worth tracking going forward are: The Monsters' revenue share; the number of IPs over RMB 100 million / over RMB 2 billion; store efficiency and same-store performance in the Americas and Europe; inventory amount and turnover days; the operating-cash-flow-to-net-profit ratio; gross margin and operating margin; changes in China and overseas channel structure; capex and lease cash flows; share-incentive dilution; and the cadence of buybacks/dividends/acquisitions.

[Signals That Trigger Reassessment] Once any of the following appears, the investment logic must be reexamined: Monsters' revenue share keeps rising but growth slows markedly; inventory turnover days keep deteriorating; operating cash flow lags net profit for two consecutive reporting periods; overseas revenue grows but margins fall significantly; management starts making high-price acquisitions or large high-price buybacks; the number of new IPs rises but the number of large IPs falls instead of rises.

[Final Recommendation] Soberly put, Pop Mart has proven it is not a "short-lived designer-toy shop" but very likely one of the few Chinese consumer enterprises with world-class IP-operating potential; but, just as soberly, an excellent enterprise does not automatically equal an excellent investment. For a long-term investor who puts margin of safety first, the more reasonable action right now is to keep tracking, rather than chase the buy because of last year's success. If the price pulls back in the future while the core operating metrics stay sound, your odds then will be far better than they are today.

This report is based on public information and does not constitute investment advice. Markets carry risk; invest with caution.