Before Pop Mart's earnings report, Deutsche Bank loudly announced a sell: overseas slowdown, domestic fatigue, potential negative growth for the year

Why is AI · Duan Yongping Increasing His Holdings in Pop Mart Against the Market Trend?

Renowned investor Duan Yongping made a high-profile increase in holdings to boost market sentiment, causing Pop Mart’s stock price to rise nearly 6% at one point on Friday. However, Deutsche Bank released a research report the day before, maintaining a sell rating on this trendy toy giant and lowering its target price from HKD 157 to HKD 140, leaving about 14% downside compared to the current market price.

Duan Yongping posted on the social platform “Xueqiu” that he had completely replaced China Shenhua coal stocks with Pop Mart, jokingly saying, “Shenhua is a very good company, and our investment has also yielded good returns. Thanks for that, and we may come back again if the opportunity arises.” This statement quickly triggered market follow-up, with southbound funds and retail investors pouring in, becoming the main catalysts for the recent rebound in stock price.

However, in a Q1 earnings preview report released on May 7, Deutsche Bank analyst Sammi Xu issued a clear warning about Pop Mart’s fundamentals: Overseas markets continue to weaken month-on-month, domestic IP popularity shows signs of fatigue, and if current trends persist, full-year revenue in 2026 could experience year-over-year negative growth.

Deutsche Bank’s forecast significantly diverges from mainstream market opinions. The bank expects Pop Mart’s adjusted net profit in 2026 to be RMB 11.5 billion, down 12% year-over-year, about 24% lower than the consensus market estimate of RMB 15.2 billion. Simultaneously, Deutsche Bank lowered the full-year revenue forecast by 14% to approximately RMB 36.5 billion and cut its net profit forecasts for 2026-2028 by 16% to 28%.

Duan Yongping’s Increased Holdings Boost Sentiment, Leading to Short-term Price Rebound

The core driver behind Pop Mart’s recent stock strength is the continuous statements and actions of renowned investor Duan Yongping. According to Deutsche Bank’s report, Duan Yongping manages over USD 17 billion in U.S. stock assets through his H&H International Investment, known for deep value and long-term investment styles. His optimistic comments on “Xueqiu” have significant appeal to retail investors and southbound investors.

The Deutsche Bank report shows that in April, Duan Yongping sold a large amount of Pop Mart put options with strike prices between HKD 145 and HKD 150. If all are exercised, this would represent about 3% of Pop Mart’s total share capital. After the options expired in April, he continued to sell put options with a strike price of HKD 155.

On May 7, he further announced the sale of other Hong Kong stock holdings and directly bought Pop Mart’s shares. These operations have continued to boost southbound capital inflows and retail attention, becoming the main source of recent stock momentum.

Q1 Preview: Overseas Slipping Significantly, Domestic Support from Low Base

Pop Mart is expected to release its Q1 operational data in mid-May and will hold its first quarterly management conference call. Deutsche Bank estimates that total revenue for Q1 will be about RMB 8.9 billion, up 73% year-over-year, but this impressive figure largely depends on the low base effect of the same period last year.

Regionally, domestic market revenue is expected to grow 85% YoY in Q1, driven by holiday sales peak and low base effects, with online sales up 86% and same-store sales growth (SSSG) reaching 42%. However, Deutsche Bank remains cautious about the sequential trend overseas: it expects overseas sales to decline 27% quarter-on-quarter, with Europe experiencing the largest drop of 41%, North America down 36%, and Asia relatively resilient with an 18% decline. Although YoY growth in overseas markets remains around 60%, this is mainly due to the extremely low base in Q1 2025 and may not reflect genuine demand momentum.

Deutsche Bank also notes that market interpretations of this management call vary—some investors see it as a positive signal of increased transparency, while others view the delayed release of operational data and the first-ever conference call as potential warning signs of downside risks.

IP Fatigue Spreading, Structural Slowdown in Domestic Market

A deeper concern is that Pop Mart’s core IPs are losing popularity domestically. The report points out that “The Monsters” (Labubu) and “Twinkle Twinkle” series launched recently have seen significant price declines in the secondary market. For example, the second-hand trading price of the Monster x Sanrio collaboration is discounted up to 40% from the original retail price; the latest “Twinkle Twinkle” series also trades at a discount, failing to replicate the previous Labubu series’ premium effect, disappointing market expectations of “Labubu-like” performance.

Deutsche Bank extrapolates the March 2026 e-commerce monthly trend to the year’s end, estimating that domestic e-commerce sales may decline 17% YoY in the second half of 2026. Based on this, the bank believes that the structural slowdown in Pop Mart’s domestic market may have already begun in Q1.

Quarterly sequential forecasts show a decline of -19%, -2%, +14%, -9% for domestic sales, and -27%, -4%, +12%, -5% for overseas sales, with total annual revenue expected to decrease by about 2% YoY. The brief rebound in Q3 is mainly attributed to the launch of “Labubu 4.0” and sales related to the World Cup.

Earnings Forecasts Significantly Below Market Consensus, Operating Leverage Faces Reversal

Deutsche Bank’s profit forecasts for Pop Mart in 2026 differ markedly from the market consensus. The bank projects full-year revenue of RMB 36.5 billion, about 20% below the consensus of RMB 45.5 billion; adjusted net profit of RMB 11.6 billion, about 24% lower than the consensus of RMB 15.2 billion; and EPS of RMB 8.51, 25% below the market expectation.

In addition to sales pressure, a reversal in operating leverage will further erode profit margins. Pop Mart’s 2025 EBIT margin was as high as 45%, far exceeding the typical retail industry margin below 20%. However, with declining same-store sales growth and high fixed costs from flagship stores in Europe and North America, profit margin compression is a significant concern. Moreover, the sharp increase in inventory levels at the end of 2025 raises concerns about potential inventory backlog and clearance risks, which could further damage brand value and financial stability.

Deutsche Bank has lowered its net profit forecasts for 2026-2028 by 16% to 28%, and its DCF target price from HKD 157 to HKD 140, implying a forward P/E ratio of 14x for 2026. The bank maintains a sell rating, noting that the current stock price of HKD 162.2 corresponds to an estimated P/E of about 16.4x for 2026, leaving room for further valuation decline.

Investors Focus on Four Key Issues, Labubu 4.0 as a Critical Variable

The report outlines four issues investors are most concerned about ahead of the upcoming management conference call.

First, the sequential sales trends across overseas regions. Since Pop Mart typically only discloses YoY growth rates rather than absolute sales figures, the market lacks official QoQ data, and investors are eager to understand the real momentum in each region.

Second, the latest sales figures for April and May. With the conference call scheduled for mid-May, the market hopes to get an update on recent sales trends following the end of Q1.

Third, the full-year operating profit margin guidance. Management previously mentioned that in the first two months of 2026, operating margins narrowed by only about 1 percentage point, but Deutsche Bank believes that softening domestic sales after the Spring Festival and high operating costs of overseas flagship stores will make it difficult to sustain this margin level.

Fourth, the progress of “Labubu 4.0.” Recently, Pop Mart Chairman Wang Ning hinted in interviews that this series will bring “brand new content,” but its launch has been delayed. The market is closely watching whether this IP can generate enough incremental sales to reverse the downward trend in brand popularity.