Pop Mart is being seriously misjudged? Morgan Stanley: Overseas business is "preemptively sentenced to death" by the market, and even in the most pessimistic scenario, the stock price is still undervalued by about 20%

MONSTER Bubble’s (Pop Mart) stock price has fallen from last year’s peak of HK$339.80 to around HK$150, a drop of more than half. What has weighed down market sentiment isn’t any single bad piece of news, but rather the company’s lack of guidance for the first quarter after the earnings report, plus overseas sales in 2025 coming in slightly below expectations. Subsequently, the bulls have dramatically cut their 2026 forecast, and the expectation gap between bulls and bears has narrowed rapidly.

According to the “追风交易台” (Zhui Feng Trading Platform), in a recent report, Dustin Wei, an analyst covering the Asia consumer sector at Morgan Stanley, directly points out that the market’s valuation of Pop Mart is based on the premise that “overseas businesses are declared failures in markets that are only just beginning to penetrate.” He uses a sum-of-the-parts (SoTP) valuation to test this logic—and intentionally adopts assumptions that are more pessimistic than the market’s. The conclusion is that the value per share is about HK$180, implying roughly 20% upside from the current share price.

Rising inventory, pressure on overseas profit margins, and controversies surrounding new businesses are the three mountains standing in front of the stock price. The severity of these three issues is likely overstated: within overseas SG&A, 40–45% are variable costs that move with sales, so losses won’t be amplified infinitely; the excess portion of inventory is estimated at RMB 1.0–1.5 billion, but Pop Mart’s products have no shelf-life—there is no expiration or seasonal clearance pressure; for new businesses, what’s truly worth tracking isn’t the small-appliance criticism with the loudest voices from outside, but rather the theme parks and the animated short film expected to premiere this year.

A market sentiment “pendulum” reaching extremes is often the moment when disagreement between bulls and bears is the smallest. Right now, nearly all investors expect the overseas data for Q1 to look weak, and the bear-case logic has already been priced in—this is precisely the report’s core basis for saying sentiment is bottoming out on a temporary basis.

Investors have priced in the worst-case scenario; even under extreme assumptions, there is 20% upside

Consensus expectations for Q1 are roughly as follows: the group’s sales are expected to grow year over year by 50–60%, Greater China sales by 70–80%, and overseas sales by about 30%, but overseas sales month-on-month in Q1 are expected to decline by about 50%. Looking at the full year, investors generally expect revenue growth in the teens percentage range, below the company’s guidance by more than 20%; full-year profit is expected to grow in the low single digits, with year-on-year declines in the second half. The sell-side consensus expects 2026 net profit of about RMB 15.7 billion, but this number is no longer the anchor for investors’ decisions.

If you treat the current share price of around HK$150 as a reasonable valuation and work backward, it implies: Greater China is valued at about 18x P/E, and the overseas business at about 7x P/E. What does 7x mean? Valuing the overseas business on its own, it would be worth only about US$2.0 billion. That is a business that has already built scale across multiple markets—Southeast Asia, North America, Europe, and Japan. Penetration rates in the United States, Europe, and Japan are still far from reaching a bottleneck.

The specific assumptions in Morgan Stanley’s SoTP are as follows: Greater China 2026 sales growth of 26%, net margin of 34.5% (slightly below 2025’s 35.1%), assigned a 22x P/E multiple; overseas business sales declining 30%, net profit declining about 60%, net margin only 20%, assigned a 7x P/E multiple. On a group-wide basis, this corresponds to sales growth of only 1%, and profit declining 12%, translating to HK$180 per share. Even with this calculation, it is still 20% higher than the current price.

Downside room for overseas profit margins is being overestimated

The market’s concern is very straightforward: when sales are growing fast, expenses as a percentage of sales are diluted; but once sales decline, the burden of fixed costs will be amplified. However, the overseas business’s cost structure has more flexibility than this worry suggests.

In overseas SG&A, the combined costs of e-commerce platform fees and international logistics/transportation account for 40–45%. These two items are highly positively correlated with online sales—sell less, and these expenses naturally fall as well.

More importantly, the details are that in the second half of 2025 versus the first half, efficiency improved materially for both of these expense items: the company’s share of sales via its own website increased, allowing it to bypass third-party platform take rates; international logistics has also continued to be optimized. These changes indicate that even if overseas sales in 2026 decline sharply, the magnitude of operational deleveraging may be far smaller than the market expects.

Inventory pressure is controllable; pricing discipline comes first

Rising inventory levels are another key focus for investors.

At the end of 2025, Pop Mart’s inventory size was RMB 5.5 billion (cost basis), higher than RMB 1.5 billion at the end of 2024. Inventory turnover days rose from 126 days in 2024 to 148 days in 2025, and is expected to rise further to around 179 days in 2026—close to the level seen during the 2022 pandemic shock.

Of this, excess inventory is estimated at about RMB 1.0–1.5 billion, caused by the company’s overly optimistic sales forecasts for Q4 and Q1 2026 made during July–September 2025. This number may look large, but there are several buffers: Pop Mart’s products have no shelf life, so there is no time pressure to force-clear inventory; cumulative inventory impairment provisions from 2021 to 2025 were only about RMB 50 million— even after going through those years of the pandemic, this figure remains very low; ongoing channel expansion will keep bringing in new users— for them, the existing IP is new products; strong demand in Greater China can also, when necessary, absorb part of the overseas excess inventory.

Discount promotions and increasing the力度 of “lucky bags” (福袋) are the fastest ways to clear inventory, but the cost is loss of pricing power. The company has not taken this route (overseas promotions increased in Q4 2025, but there was no systemic action). The choice itself shows that management believes pricing discipline is more important than inventory turnover speed.

The market misreads new businesses; the IP potential of short-form video is being overlooked

Pop Mart’s upcoming line of small home appliance products has raised market skepticism, and some investors interpret it as “desperate measures taken in a hurry” given perceived weak growth momentum.

The report points out that the project has been developed for at least 1.5 years already. At that time, the company was in a stage of exponential growth. The small appliances category is positioned similarly to the MEGA series products, targeting the core consumer group comprising the top 5% to 10% of Pop Mart’s audience. Functionality is not the core selling point; instead, it serves as a “secondary display item”—the first product is the The Monsters refrigerator/mini-fridge, positioned for placement in rooms rather than for use in the kitchen.

The firm admits that this category has a lower gross margin and a longer inventory cycle, but expects the company will not aggressively push sales; rather, it will closely track consumer feedback and use it as an exploration of long-term category expansion.

What is truly worth tracking are several other new businesses: Pop Land theme park, POPOP trend jewelry, Pop Blocks building blocks, and a desserts line—this year is expected to see more substantive progress. In addition, the animated short films for Twinkle Twinkle and Peach Riot are expected to premiere this year. Once the animation accumulates an independent audience segment, the IP value will no longer rely purely on store openings—this is a narrative line that the current market has almost not incorporated into pricing.

Disclaimer: The content and data in this article are for reference only and do not constitute investment advice. Please verify before use. If you act based on this, the risk is your own.