POP MART – MARKET & Financial analysis 2
Table of Contents
Executive Summary 4
Market Analysis 5
Summary of Pop Mart and The Pop Toy Market 5
Pop Mart 5
China’s Pop Toy Market 5
Industry Analysis 7
Target Market 9
Consumer Profile 11
Major Competitors and Participants 13
Market Segmentation 15
Projected Market Growth and Market Share Objectives 18
Domestic Market Growth 19
Product and Service Offering 21
Product and Service Uniqueness 23
Product and Service Descriptions 24
Molly 24
PUCKY 24
The Monsters 25
Competitive Comparisons 26
Research and Development 26
Patents and Trademarks 28
Financial Analysis 28
Cash Assessment 28
Working capital turnover 28
Current Ratio 31
Quick Ratio 33
Accounts Receivable Turnover 34
Inventory Turnover 36
Payable Turnover Ratio 37
Debt-to-Equity Ratio 40
Cash from Operations 42
Profitability Assessment 43
ROE 43
Return on Assets 45
Net Profit Margin 46
Assets Turnover Ratio 47
Equity Multiplier 49
EPS 50
Gross Profit Margin 52
Operating Income Margin 53
Income Before Tax Margin 54
Recommendation 56
References 58
Executive Summary
Market analysis is the key for an enterprise to clearly understand its position in the market and maintain the competitive advantage of the business by accurately targeting customer groups. For Pop Mart, since it is a pop toy company based on the creation of art, it has IP at its core, and it needs to constantly refine and innovate its IPs so as not to be left out of the collectible pop toy market. It needs to constantly research and follow up on the status and trends of its market and related markets, and to accurately target its markets by analyzing consumer preferences and defining market segments. To maintain a competitive advantage in the industry and long-term development, Pop Mart needs to establish an effective business strategy. Secondly, the company’s product presentation, product uniqueness, and the difference between its products and those of its competitors are also extremely important in Market Analysis, as it needs to show its product advantages to consumers in order to increase corporate revenue and consumer brand loyalty. In Market Analysis, R&D (Research and Development) can outline the strategies that the company will use to improve and innovate in order to maintain its market share or create more room for improvement in the market. Finally, in this section, the company’s patents and trademarks are also presented.
Financial analysis is to help managers find the company’s current operations and position in the same industry. Solving the problems pointed out in the financial analysis will be the focus of Pop Mart when it continues to operate in the future. In terms of the performance of financial operations, Pop Mart’s current ratio, account receivable ratio and payable turnover ratio show that it is in the forefront of the current market environment. Moreover, in terms of the trend of these data, Pop Mart has the potential to become a leading company in the industry.
However, the analysis also found that Pop Mart has certain shortcomings in its current operations. Especially when it comes to current asset ratios, the performance is not good. This is because Pop Mart’s sales have not kept up with the asset growth rate. Therefore, the current top priority is to expand the company’s sales and broaden the market.
Market Analysis
Summary of Pop Mart and The Pop Toy Market
Pop Mart
Pop Mart Cultural & Creative Co., Ltd. is a fast-growing and the largest pop toy company in China’s pop toy market, and it was found in 2010 by its current CEO Wang Ning. The company is now one of the leading players in China’s pop toy culture and market because it is not just a pop toy seller, it has its own complete and efficient ecosystem that includes pop toy designing, producing, distributing, and commercializing. Most popular toy lovers probably think of Pop Mart as the leading company that brings them collectible original design toys. Moreover, Pop Mart establishes a platform of the entire pop toy industry chain, which covers artists development, IP operation, customer access, as well as pop toy culture promotion, and among them, the IPs are the core of the business. To follow with, there are three types of IP that Pop Mart is operating, proprietary IPs, exclusive licensed IPs, and non-exclusive licensed IPs, and the company already has established 93 IPs as of 2020. To add with, the most popular and best-seller IP Molly which takes 32.3% of its total revenue in 2019, is a series of figurines in blind-boxes. According to its own, as of 2020, there are over 135 offline retail stores located in major first-tier and second-tier cities in China, 1001 robo-shops covering 62 cities in China, as well as distributors in over 21 overseas countries or regions, like Korea, Singapore, and Japan. As such, the goal of Pop Mart is not only to develop in the domestic market in China but also to expand its global market in the future.
China’s Pop Toy Market
In China, with the growth of domestic GDP, people’s expenditure on spiritual satisfaction, in addition to material pursuits, has been growing at a steady and rapid pace in recent years. Collectible pop toys are part of the spiritual pursuit of products, so the growth rate of the market in China in recent years is not to be underestimated. Data shows that in 2015, the domestic pop toy market was only RMB6.3 billion, growing to RMB10.8 billion in 2017, booming to RMB36.6 billion in 2021, and experts predict that by 2024, the market will expand to RMB76.3 billion. This trend not only reflects the growing retail market for pop toys in China, but also represents a promising future for Pop Mart in the domestic market, but also comes with many challenges, such as the influx of up-and-coming competitors. China’s economic growth is the biggest driver of the country’s rapidly growing toy market, as economic growth means a growing GDP, which means people have more disposable income, which has led to a significant increase in demand for toy products from the middle class and above. Meanwhile, the growth of China’s pop toy market size depends on the following key drivers which will be specifically discussed in this article later: dedicated and growing fan base, from niche to mainstream, increasing the release of blockbuster IPs, growing disposal income, and consumption power. In addition, “the online sales channels represent one of the fastest-growing distribution channels for toys in China”, with the popularity of mobile devices and the rapid development of the e-commerce industry in China, the online purchase channel for a wide variety of popular toys is also booming. Meanwhile, consumers can discuss and refer to various products through various platforms and complete a series of purchase steps such as placing orders directly online, which is convenient and fast.
Global Pop Toy Market
Similarly, the international collectible pop toy market is growing fast when the pop toy industry is growing rapidly, driven by the growth rate of per capita disposable income and the launch of high-end IP. According to the Frost & Sullivan Report, the CAGR of the global market size of pop toy from 2015 to 2019 is 22.8%, from US$8.7 billion to $19.8 billion, which is also predicted to reach a point at US$41.8 in 2024 at a CAGR of 16.1% from 2019. The expansion of the international collectible pop toy market is driving Pop Mart’s overseas expansion plans, and the company is not only satisfied with its leading position in the domestic market but also aspires to have a presence in the international market.
Industry Analysis
To start with, the bar chart below witnesses the market size growth of the pan-entertainment industry in China, which includes digital entertainment, physical merchandise, and offline activity. Among those categories, pop toys belong to physical merchandise. It clearly shows that the growth of the pan-entertainment industry from 2015 to 2019 is maintained steadily from RMB527.7 billion to RMB916.6 billion in 2019 at a CAGR of 14.8%; and the growth rate from 2020 to 2024 is predicted to be more rapid, from RMB964.8 billion to RMB1780.7 billion. This shows that the development of China’s pan-entertainment industry in the future is not to be underestimated. The growth of physical merchandise represents the fastest rate, from RMB14.6 billion in 2015 to RMB32.5 billion in 2019, at a CAGR of 22.1%; and it is predicted to keep booming at a CAGR at 23.3% from RMB32.5 billion in 2019 to RMB92.6 billion in 2024. Pop culture, as one of its important components of physical merchandize, has attracted many loyal fans with its wide range of products and diverse IPs of pop toys. Pop culture platforms also provide several platforms where fans can show their personalities and ideas, helping them share elements of pop culture.
Figure 1
Source: https://www1.hkexnews.hk/listedco/listconews/sehk/2020/1211/9545023/sehk20112200162.pdf
Pop Mart has 8.5% of the market share in China’s pop toy retailing market, while its market share in the global market is still in a beginner stage. Although the company has already captured a significant market position in the domestic market, there are still a variety of challenges and pressures from competitors to face in its international expansion. “On December 11, 2020, POP MART launched its initial public offering (IPO) at 38.5 HK$ a share seeking to raise 674 million dollars. By the end of the day, POP MART’s share value had doubled to 77.1 HK$, breaking the record for best debutant for deals over 500$ in Hong Kong”, according to this note, Pop Mart has tremendous potential to own a higher market share in the domestic market and even show its strengths in the global market. Since Wang Ning opened its first retail store in Beijing ten years ago, Pop Mart has already owned an impregnable market position in this market with its undervalued strength.
According to the Frost & Sullivan report, the market size of China’s pan-entertainment industry is predicted to grow at a CAGR of 14.2% from RMB916.6 billion in 2019 to RMB1780.7 billion in 2024, which is supposed to be maintained to grow stably; the growth of physical merchandise market which pop toy belongs to is predicted to grow at CAGR of 23.3 from 2019 (RMB32.5 billion) to 2024 (RMB92.6 billion). The data reported shows that the toy market in China is in the early stages of development several years before but will grow at a more rapid pace in the coming years. Then along with the general environment driven by the extremely rapid expansion of the domestic toy market will play a catalytic role in the development of Pop Mart. The company, as a leader in the domestic pop toy market, has also contributed greatly to the development of collectible pop toy culture in the country, plus the company’s vision also includes fostering more pop toy designer talent, which will give it a firmer footing for growth in the years to come.
When Pop Mart CEO Wang Ning first founded the company in Beijing in 2010, it was just a small retail store selling cosmetics, small toys and other sundries, and it suffered a lot of net losses from 2013 to 2016; but since buying the Molly character IP in 2017, the company’s turnover has soared, with the doll alone generating $24,105 for the company that year and accounting for 26.3% of total sales of the company. Since Pop Mart officially entered the popular toy market, its main source of profit has been extremely dependent on its main IP, but the company has also long realized that this is not a long-term solution to gain a firm foothold in that market. As such, in recent years, the company has devoted itself to exploring high-quality IPs and training a large number of pop toy design talents at home and abroad to create more proprietary IPs. In this way, the company can gain a greater competitive advantage in the industry, thus expanding the market share. In addition to expanding its share of the domestic market, Pop Mart’s strategic direction is also geared toward the global toy market. Pop Mart has officially stepped into the global market at the end of 2018, starting by opening offline stores and robo-shops (vending machines that sells blind-boxes) in Korea, Japan, Singapore, etc., as well as launching global online selling platforms like Amazon, and it has been active in 20 more countries and regions. According to an interview with its vice president, Justin Moon, “finding new growth opportunities in overseas markets, promoting the development of the local industries related to art and pop toys, and contributing to local communities by boosting local employment are also important missions for our brand”, thus, Pop Mart’s strategic deployment in overseas markets is not only to increase its market share, but also to develop more opportunities and promote the development of local pop toy-related industries, and also to contribute to local communities.
Target Market
According to the Frost & Sullivan report, the category of pop toys refers to the combination of pop culture and trendy content, differing from traditional toys which more tend to be designed based on common images, while pop toys are more likely to be designed based on licensed IPs that are considered as more valuable to be collected, like cartoon, movie, animation, etc.. As such, while the main sales model for traditional toys is mass production bulk sales and mainly focus on children, collectible pop toys are based on IP designed exclusively by designers, accompanied by a very small number of limited-edition products, thus having a higher collector value.
Pop toys’ target consumers are those between 15 years old to 40 years old, who have a higher pursuit of spiritual satisfaction and are willing and able to pay for it. Meanwhile, this group of target consumers has more passion to share with others to show their attitudes, personalities and spiritual feelings. To follow with, according to an interview by the toy chronicle with POP MART, it is told that the main occupation of its target market is urban white-collar employees and students, and 75% of them are female. Thus, the geographical sector of Pop Mart’s target market is known as urban regions, which can also explain why most of its retailing stores are opened in first-tier and second-tier cities in China. Also, the demographic sector is the young generations who have higher-education foundations, which means they have higher spiritual pursuits and are more willing to pay for them. The vice-dean of the Institute for Cultural Industries at Peking University, Chen Shaofeng, said that “the increasing number of designer toy consumers in China has been sparked by higher standards of living”. This indicates that the domestic pop toy market has grown by leaps and bounds in recent years mainly because rising per capita income has brought people more disposable income, leading to relatively more freedom to pursue their favorite things. Meanwhile, it is worth mentioning that young people are more likely to make some impulse purchases and are more willing to spend on their emotions and hobbies. In addition, the main consumer group of Pop Mart is women because women and children are the easiest to target when most businesses plan their target consumer groups. “Women make up 75% of Pop Mart customers with 32% of them born after 1995 and 90% have monthly salaries ranging from 8,000 yuan to 20,000 yuan, according to a public statement last year”, announced by Guo Xiao, Pop Mart’s chief marketing executive. Thus, from this, it can be deduced that the average age of the company’s main consumer group so far is around 27 years old women and that 90% of the consumers in this group have an average income that is high given the current economic situation in China. More detailed information about Pop Mart’s major groups of consumers would be analyzed in the next section “Consumer Profile”, which will be more related to its current consumers’ lifestyle description and demographics.
Consumer Profile
Pop Mart, as a Beijing-based pop toy retailer with a market share of 8.5% in mainland China, its revenue has boosted from RMB158.07 million in 2017 to RMB1.68 billion in 2019 by over 2.2 times, and its net profits have been grown by over 280 times to RMB451.12 million in 2019. It indicates that the company’s market has been going very well in recent years. As a distributor of popular toys, the company is a private sector business, so its success in the Chinese popular toy market is extremely dependent on its precise timing of market entry and effectively targeting its customer base.
Pop Mart’s CEO and founder, Wang Ning, founded the company in 2010 and initially, the company has been running in a small-scale model of selling lifestyle trendy items, but since the company bought a pop toy image IP named Molly in 2017, it has rapidly become popular in the domestic trendy toy market. It indicates that the pop toy culture in China has become popular since then, while Pop Mart entered the market at the right time. For this company, precise customer targeting is important, which means that there is no need for everyone to accept its products. Instead, focusing on taking down a small group of people, having a deep understanding of the needs of this small group, and offering a full range of “perfect” services.
As it was mentioned in the last section, the major consumers of Pop Mart are female, which occupies around 75% of the total; the average age of them is 27 years old; 90% of them have monthly salaries from RMB8000 to RMB20,000; and most of them live in urban regions. The company’s main consumer group is young people, rather than children who are traditionally targeted by toys, firstly because young people have the financial independence to support repeat purchases of the company’s products; and secondly, because the younger generation is more willing to spend on spiritual satisfaction and is more likely to spend impulsively compared to the older population. “Pop Mart figurines are emotionless and offer blank facial expressions – which demonstrates urban youth exhausting and fragmented lives”, said the consumer of Pop Mart. As such, as it can be seen in figure 2, that each doll is designed in a different shape, but their facial expressions are presented in an expressionless posture, which shows that younger customers love the company’s toys because, in a way, they believe that the style of these toys expresses their personality, their innermost feelings, or their character. “It’s about individuality and relieving pressure. People collect designer toys and they interpret the characters’ emotions in their way”, Wang Ning said. Pop Mart’s main customers are urban white-collar workers, who can only be attributed to the tremendous pressure that contemporary society puts on young people. What Wang Ning said presents that the company also hopes to bring more emotional outlet for the young people under strong pressure through pop toy design, to reduce their pressure.
Figure 2
Source: https://www.strangecattoys.com/products/molly-school-life-series-by-kennyswork-x-pop-mart
Pop Mart’s marketing approach accurately captures the psychological needs of consumers, especially the combination of the company’s IP and blind box, as well as all the later marketing models that are intertwined to capture the “addiction” psychology of consumers. Simply put, the blind box is a palm-sized cardboard box from the outside all look the same, but each carton contains a different figurine; and each carton has 144 Minifigures with 12 randomly distributed styles. It is because when consumers buy the blind box is unknown to the image of the toy in the blind box, so they have a certain “gambling” mentality, always want to try to buy the one they want. This consumer mentality has greatly benefited Pop Mart’s performance and has quickly made it a well-known seller of blind boxes in the industry in a short period. Moreover, each blind box is sold at a price of RMB59, which is around US$8. The company’s pricing is interesting. RMB59 is not cheap for a palm-sized doll, but loyal customers keep coming back for these toys, an advantage that comes from the company’s accurate positioning of consumer psychology. In short, paying for spiritual satisfaction is a contemporary consumer trend among young people in China, and Pop Mart’s entry into the market at a time when pop culture was just beginning to spread in China, with the right timing and accurate targeting of consumer groups and psychology, allowed the company to gain a firm foothold in its market.
Major Competitors and Participants
The Chinese pop toy market was in the doldrums until 2016, as pop culture did not enter the domestic consumer’s attention span at that time when the market was below $10 billion. But with the changing mindset of domestic consumers and the increased purchasing power of post-90s youth, the market has shown rapid growth since 2016. According to Frost & Sullivan Report, the market size of China’s pop toy market has surged from US$11.9 billion in 2017 to US$19.8 billion in 2019 with a stable and high growth state and is expected to reach US$41.8 billion in 2024. In the early years of the domestic pop culture in the early stage of development has been given a huge advantage to Pop Mart’s development and will be in the future providing a greater play space. But at the same time, although Pop Mart currently holds the highest market share in this unsaturated market, the unpredictable future will see an influx of more competitors into the market, along with several challenges. According to figure 3 which shows the competitive landscapes of the domestic top five pop toy companies by retail revenue in 2019, the CAGR of Pop Mart represents an explosive rate of 226.3%, while the other four companies are far behind it. To follow with, the reason why Pop Mart has a much larger scale of CAGR can be analyzed into the following reasons: (i) the other four companies already had much larger scales and longer history of the company operating than Pop Mart which jumped into the market in 2017 with its first IP Molly, (ii) blind box is the major category of Pop Mart which brought Pop Mart a CAGR of 143.2% in 2019, comparing with other product categories with a CAGR of 29.7% in the same time, it has higher volume due to its interactive consume experience and popularity, (iii) Pop Mart has more popular IPs than others, (iv) Pop Mart has increased its brand awareness by holding exhibitions of pop culture, (v) also, Pop Mart is the only one in the pop toy companies in the domestic market with an integrated platform, which includes a varies of the industry chain, from IP operation, OEM operation, various ways of consumer access, as well as pop culture promotion. With those competitive advantages, Pop Mart apparently has a larger scale in the pop toy market than its competitors. However, according to Frost & Sullivan report, some relatively mature and well-known IP providers tend to publish their high-quality IPs to a large number of different market players, thereby reducing their risk and increasing their returns. This phenomenon has significantly lowered the market threshold and led to increased competition in the domestic popular toy market.
Figure 3
Source: http://corpsv.etnet.com.hk/data/documents/ipo/20201201/HKEX-EPS_20201201_9529208_0.PDF
Furthermore, statistics reported by Frost & Sullivan represents that the top five pop toy market players owned a market share of 8.5% (Pop Mart), 7.7%, 3.3%, 1.7%, and 1.6%, respectively, and the other players occupied 77.2% in total, in 2019. Even though Frost & Sullivan did not show names of the top five pop toy market players other than Pop Mart, the data can represent the current status of the company’s four strongest competitors in the industry in the domestic market. It is worth mentioning that the analysis of the pop toy market share data shows that the market is extremely fragmented. The top five companies in the domestic market have a combined share of only 22.8%, and there is only a 0.8% difference between Pop Mart and its competitor with the second largest market share. This means that in a market with such a low level of industry concentration, elimination can happen at any time because China’s pop toy market is in a relatively developing stage, most brands are still in the market expansion period and their potential has not exploded yet. In addition, Pop Mart’s main consumer group, Post 95, actually has low loyalty. “I just want to buy something, the brand I buy is not important”, said by a university student, Xiao Feng, who normally spends hundreds of RMB in purchasing blind boxes. Thus, the post-95s are very individualistic, which is the main performance and advantage of the customer group in the pop toy market, but it has also become a great challenge for the market.
In the domestic pop toy market, Pop Mart is not the only one to play with its main product category of blind boxes, Miniso officially launched the sub-brand “TOPTOY” in 2020, a collection of toys for both adults and children opened nine stores in five cities in China in one week. Comparing with Pop Mart which relies on its core, IPs, TOPTOY collects more kinds of pop toys and uses different IPs to meet the consumption needs of the 10-40 years old customer group, which makes Pop Mart may face great business risks. This is an apt example that the domestic hip toy market will emerge with a group of toymaker companies of comparable strength one after another. Just because Pop Mart is the market leader does not mean that it is already a success, rather, Pop Mart’s listing means that the competition in the domestic popular toy industry has officially begun.
Market Segmentation
Market segmentation is significant for an enterprise to maximize its efficiency in targeting consumers, and it should be measurable, accessible, substantial and actionable to achieve the right market segmentation criteria. As figure 4 shows, there are four categories of market segmentation, which are known as demographics (people), behavioral (knowledge, attitudes, uses, and responses), geographic (regions), and psychographics (lifestyle, personality, and social class). For Pop Mart, the market segmentation will be analyzed more focused on the domestic market in mainland China rather than in its overseas market, because its major business is still operated in China even though it has started to reach out to the global pop toy market.
Figure 4
Source: https://marketing-insider.eu/market-segmentation-criteria/
Demographic Segmentation
According to research, demographic segmentation is all about the information of the population, like age, gender, family size, etc., which is more popularly used in consumer-based market segmentation since consumer needs and wants are the most significant components for a company to sell products. Precisely, for a company like Pop Mart, which relies heavily on the characteristics of its customer base to understand their needs, it is important to be able to pinpoint the demographic segments. As mentioned in the section of “Target Market” previously, the age range of its major group of consumers is known as between 15 years old to 40 years old who are urban white-collar employees and students, and 75% of them are female. Meanwhile, young people are the easiest group to make impulse purchases and have more budget to pay for their hobbies and emotions, and among them, females are more likely to be the target of business in the business population segmentation.
Geographic Segmentation
Geographic segmentation divides targeted consumers according to the geographic units, like nations, states, and regions, or even cities. As things stand now, Pop Mart’s main market is in mainland China with 25 distributors covering 16 provincial territories, and along with the global expansion plans it has just launched, there are already 22 overseas distributors in 21 regions and countries, as of 2020. According to figure 5 which presents a geographic breakdown of Pop Mart’s revenue and gross profit from 2017 to 2020, it is obvious that most of its revenue is generated in PRC (the People’s Republic of China), from RMB157,414 thousand in 2017 to RMB1,656,544 thousands in 2019. However, it is worth mentioning that the revenue of its overseas market is rapidly growing, from RMB660 thousand in 2017 to RMB26,890 thousand in 2019. This indicates that Pop Mart’s development in overseas markets is very promising, and shortly the company is likely to become a dark horse in the global pop toy market.
Figure 5
Source: http://corpsv.etnet.com.hk/data/documents/ipo/20201201/HKEX-EPS_20201201_9529208_0.PDF
Psychographic and Behavioral Segmentation
The segmentation of psychographic refers to the market divided based on consumers’ social classes, personality, and lifestyle, while behavioral segmentation divides customers based on their knowledge, attitudes, uses, and responses to a specific product. More specifically, since Pop Mart’s main consumer group is the post-95 youth, it is particularly important to focus on the shopping preferences and psychology of today’s youth when understanding the psychological and behavioral segmentation of the customer group. Since more and more younger generations in China show their appreciation of art and culture, the market size of Pop Mart increases rapidly in recent years. As young people gradually gain a deeper understanding of and interest in pop culture, the company’s popularity will increase, and with it, growing benefits. Therefore, from a behavioral segmentation point of view, it is also extraordinarily important to improve the customers’ understanding of the culture of origin of that product before promoting that company’s products. In addition, as mentioned before, the company’s main consumer group is young post-95 urban white-collar women, so from the perspective of social class, the company’s main target consumer group is the urban group with higher income and higher education background. However, the company’s toys are priced at RMB59 each, which is affordable for families with average incomes, unlike other collectible toys that turn away most people with low to moderate incomes who love to play, Pop Mart targets middle to high-income people because repeat purchases of a range of Pop Mart products are costly. “Buying and collecting certain kind of art toys is a way they express their selves; a way to tell people who they are and what they like”, as such, from a psychological segmentation perspective, contemporary young people generally love to pay for their spiritual satisfaction, and the popularity of pop culture allows them to express their attitudes and personalities through these products, and even expand their social circle by sharing their buying experience and love of toys on social platforms.
Projected Market Growth and Market Share Objectives
Since its launch, Pop Mart has further boosted the company’s momentum in the domestic pop toy market. According to Frost & Sullivan’s report, the market size of pop toy retail in China increased from RMB 6.3 billion in 2015 to RMB 20.7 billion in 2019, at a CAGR of 34.6%. The market size is predicted to reach $76.3 billion by 2024 and continue to grow at a high rate, driven by the continued rise in the popularity of pop culture in China. In addition, the pop toy market in China is still in the pre-competitive stage and the market is not yet saturated. Meanwhile, as mentioned in the previous section, the market share of the top five pop toymaker companies in China is 8.5%, 7.7%, 3.3%, 1.7%, and 1.6%, and as the leader of the industry, Pop Mart occupies the highest market share of 8.5%. Furthermore, the accurate positioning is extremely powerful for its long-term stable development, thanks to the company’s ability to meet the needs of its target customer groups and a range of changes, as mentioned. Through Pop Mart’s prospectus, then, the company indicates that its plans for the future market fall into two main categories: continued expansion of the domestic market, and gradual expansion into overseas markets.
Figure 6
Source: http://corpsv.etnet.com.hk/data/documents/ipo/20201201/HKEX-EPS_20201201_9529208_0.PDF
Domestic Market Growth
To start with, considering Pop Mart’s market development in the domestic market, China’s e-commerce industry has the largest market in the world and has been in a state of continuous growth in recent years, with the volume of US$1.94 trillion in 2019. Since the e-commerce industry is an essential and related industry to the pop toy industry, their growth and development are complementary to each other. Figure 6 represents the percentage of revenue by sales and distributions channel in recent four years, accordingly, revenue from direct offline retail stores fell from 63.9% in 2017 to 43.9% in 2019, robo-shops’ revenue rose from 3.5% in 2017 to 14.8% in 2019, wholesale’s revenue percentage fell from 18.9% in 2017 to 6.6% in 2019, and most notably, the company s online sales channel for the company’s revenue percentage grew rapidly from 9.4% in 2017 to 32% in 2019. This shows that the company’s online sales have grown at a CAGR of 602.58% in the last two years. According to Pop Mart’s prospectus, its fast-growing online channels include Tmall flagship store, Pop Draw, Paqu, and other related mainstream e-commerce platforms in China has played important roles in providing its consumers with a convenient and efficient shopping experience. The online platform not only provides the company with a sales channel, but also an extremely effective multi-channel membership process and the fastest customer service. To follow with, this has increased customer viscosity to the brand and broadened the consumer base. However, from the perspective of future development, despite the growing online turnover, Pop Mart should still focus on the expansion of offline stores, because consumers can only buy in offline stores to have a personal experience and feeling, which is extremely helpful for the brand recognition.
Global Market Growth
Then, Pop Mart also has had global market expansion plans in recent years. In recent years, with the trend of cultural diversity and general personalization of the younger generation, pop culture has become more and more popular among people around the world, resulting in the size of the global pop toy market consumer base has grown rapidly at a very significant rate in recent years. According to the Frost & Sullivan report, as figure 7 represents, the global pop toy market size increased from US$8.7 billion in 2015 to US$19.8 billion in 2019, at a CAGR of 22.8%; the future image of the global pop toy market is expected to grow at a CAGR of 16.1% up to US$41.8 billion in 2024. As such, the rapid growth of the global pop culture landscape has been very beneficial for a private company like Pop Mart, which originated in China, to attack the global market. The demographic segment of China’s pop toy market was mentioned in previous sections, the main consumer base is aged from 15 to 40 years old that occupies 35% of China’s population, has shown a strong desire of expressing their self-expression individuality and are willing to buy for their emotional satisfaction. Other than that, it is understood that Pop Mart’s vice president, Justin Moon, has said in an interview that the company’s global market expansion strategy is based on its achievements in China where it is at the forefront and will plan to expand its business on a larger scale globally, mainly to cultivate more teams of IP design talent, as well as expand the pop culture the company has been working to promote around the world. In addition, he also mentioned that the company has already established to the European market and the North American market based on its achievement in Asia and Southeast Asia.
Figure 7
Source: http://corpsv.etnet.com.hk/data/documents/ipo/20201201/HKEX-EPS_20201201_9529208_0.PDF
Product and Service Offering
Pop Mart, as an IP operation and management company, IP is the core. Simply put, Pop Mart designs and produces small, palm-sized, cute, and unique collectible toys that are placed in blind boxes based on what its consumers need and want. It has owned 93 IPs consisting of proprietary IPs (full intellectual property rights), exclusive licensed IPs (granted the exclusive rights to develop and sell pop toy products), and non-exclusive licensed IPs (granted non-exclusive rights to develop and sell pop toy products), as of June 30, 2020. In more detail, each IP is a distinctive toy, and because they have different images, consumers love them differently, therefore, each IP brings different benefits to the company. Figure 8 represents the breakdown of revenue generated by each IP category in recent years, which shows that Pop Mart’s most popular proprietary IPs include Molly, Dimoo, BOBO&COCO, Yuki, along with others, generating RMB627,027 thousand in 2019, as 37.2% of the total revenue; its exclusive licensed IPs include PUCKY, The Monsters, SATYR RORY, and others, generating RMB597,362 thousand in 2019, as 35.4% of the total; followed by it non-exclusive licensed IPs, which generated 9.5% of the total revenue in 2019, shown as RMB159,820 thousand. Meanwhile, among them, it is obvious that Molly, as Pop Mart’s first proprietary IP launched in 2017, has the highest volume, which brings the company RMB456,018 thousand revenues in 2019, which occupied up to 27.1% of its total revenue; then its best-seller exclusive licensed IP launched in 2018, PUCKY, which generated RMB315,318 thousand in 2019, as 18.7% of the total; followed by The Monsters, officially launched in 2019, brought RMB107,846 thousand revenue as 6.4% for the company, as of 2019.
Figure 8
Source: http://corpsv.etnet.com.hk/data/documents/ipo/20201201/HKEX-EPS_20201201_9529208_0.PDF
Notably, Molly, Pop Mart’s official entry into the Chinese pop toy market, is the iconic IP that the company bought in 2017 and brought 89.4% to the company in the same year, followed by 62.9% in 2018. The reason why Molly’s revenue margin for the company has been diminishing in the last two years is that the company is constantly discovering and launching new high-quality IPs that will strengthen the company’s competitive edge.
Product and Service Uniqueness
In the same way that a company must have its uniqueness to maintain a long-term competitive advantage in its industry, the products it sells need to be continuously improved to maintain its uniqueness if they are to attract and satisfy customers in the long term. Pop Mart, as the leading company in the domestic collectible pop toy market, must have unique advantages that other companies in the same industry do not have. According to Pop Mart’s prospectus, the company’s key uniqueness includes a vanguard of Chinese pop culture, strong IP development and operation capabilities, a wide range of consumption and communication channels for consumers, solid consumer stickiness, accurate positioning for global market expansion, and an excellent management team. As such, those strengths are not enough for a company to stay competitive from consumers’ perspectives. Simply put, consumers care about the quality, price, quantity, outlook, and many other categories of a company’s products, which indicates that the products the company sells have to show uniqueness to stay attractive, competitive, as well as sustainable in consumers’ eyes in the long term.
Some of Pop Mart’s consumers in China said that the company has an extremely fast uptake of new products, so it can consistently draw customers into the store to make purchases. According to research, the company’s most popular IP, Molly, launched seven, six, and five series from 2017 to 2019, respectively; meanwhile, up-and-coming IP, Pucky, launched three and six new series in 2018 and 2019, respectively, figures that show the company’s product turnover is much faster than that of its competitors, such as Kule Chaowan. Furthermore, as mentioned before, even though the online revenue of Pop Mart is increasing rapidly in recent years, followed by the decreasing revenue generated in its offline retail stores, Pop Mart still focuses on expanding offline retail stores all over China, due to the importance of attractive experience for consumers in retail stores. In addition, Pop Mart’s product category belongs to the high-end, but the single product price is only RMB59 (US$8) each, as previously mentioned, so the product price positioning for the public threshold is still low compared to other high-end brands of collectible pop toys, which is also one of the uniqueness of the company’s products.
Product and Service Descriptions
In this section, several of Pop Mart’s current hottest products will be displayed and introduced, including Molly, PUCKY, and The Monsters.
Molly
Molly, the first and most popular IP of Pop Mart which was officially launched in 2017, has the meaning of milestone of the company entering the pop toy industry. As figure 9 shows, the base image of Molly is an expressionless palm-sized girl, and there are twelve different images of different series of blind boxes, including a limited-edition blind box of undisclosed shape. As mentioned earlier, Pop Mart’s pricing for each blind box is around US$8, but with exchange rate changes, the current real-time prices are shown on its official site range from US$9.50 to US$11.50, and the whole set of one series is priced at US$76 to US$138. Molly has brought the company the highest revenue, from RMB41,019 thousand as 25.9% of the total revenue in 2017 to RMB456,018 thousand as 27.1% in 2019, respectively, as figure 8 represents.
Figure 9
Source: https://global.popmart.com/collections/molly
PUCKY
Pop Mart’s IP named PUCKY was officially launched in 2018, has brought the company revenue of RMB75,075 thousand (14.6%) in 2018 to RMB315,318 thousand (18.7%) in 2019, which is the second most popular IP of the company. According to figure 10, PUCKY is now priced from US$9.5 each, and US$114 for the whole set on its official website. Also, similar to Molly, it has 12 different figures in one series of blind-box, with one hidden figurine.
Figure 10
Source: https://global.popmart.com/collections/pucky
The Monsters
One of Pop Mart’s exclusive licensed IP blind boxes, The Monsters, was launched in 2019 and has brought the revenue of RMB107,846 thousand as 6.4% of the total revenue in 2019. According to Pop Mart’s official site, the price of The Monsters is set as the same as PUCKY’s.
Figure 11
Source: https://global.popmart.com/collections/the-monsters
Competitive Comparisons
POP TOY
KULE CHAOWAN
Bandai
Product Quality
High-end
Mid-end
High-end
Price
RMB59
RMB36
RMB207
Image
Target user
Youngers
Children & Youngers
Youngers
Distribution
Own Distributors in Both Domestic Market & Overseas Market
Self-owned
Own Distributors in Both Domestic Market & Overseas Market
Warranty
Return/Exchange Not Supported
Return/Exchange Not Supported
Return/Exchange Not Supported
Promotion
Seasonal
Seasonal
Seasonal
Research and Development
Pop Mart, as an art-based pop toy company, innovation is at the core of everything to ensure the quality and flow of its IP. As mentioned earlier, one of the reasons Pop Mart will increase its efforts to expand globally is to gather global pop culture design talent so that it can acquire more high-quality IP to ensure that the company can retain existing customers and attract more potential customers in the future as customer favorites keep changing. Drawing inspiration from artists around the world, the company was able to improve on its old products and create new ones to meet the needs of its customers. In addition, the company mentioned in the prospectus that it could not ensure that consumers would always be attracted by the IP they operate. The company has been improving its existing products and developing several new premium IPs in the past, but the popularity and brand loyalty of the pop toy industry’s customer base (mainly post-95s) is something that companies can’t predict, so Pop Mart has shown that it can’t guarantee that it will continue to create IPs that consumers will love in the future, but the company has built a good infrastructure in recent years that will give it a solid platform for future growth in the market. Meanwhile, Pop Mart’s market share has grown in recent years and the company has become larger, the company has innovated its business strategy. For example, in 2017 Pop Mart combined with the “blind box”, an innovative strategy that led to a significant increase in turnover and allowed the company to officially enter the collectible pop toy market. Furthermore, Pop Mart has also held some collectible pop toy exhibitions, thus attracting many enthusiasts and outstanding designers, further increasing brand awareness while promoting the development of collectible pop culture in China, even in Asia. For example, the Beijing and Shanghai Toy Show, with 300 designers from China, Japan, Korea, the U.S., and Europe attending in 2019, bringing together teams of popular toy designers from around the world to discuss inspiration and collaborations, and the opportunity for fans to meet their favorite popular toy designers, and it’s a great opportunity for Pop Mart to discover and collaborate with great designers. In addition, Pop Mart has an innovative strategy to provide its customers with multi-channels, which give the customer base more access to the brand’s products, thus satisfying their needs and increasing brand awareness and revenue. For example, Pop Mart’s partnership with PAQU and Xianyu from Alibaba gives Pop Mart’s loyal fans a reliable platform to explore or find products that are sold out on the website. On these platforms, the price of a popular IP can be inflated dozens of times, but the peculiar psychology of consumers in that market makes more consumers willing to pay that money or do whatever they can to get it. This can only be good for Pop Mart, as it can promote new products through these platforms and maintain the buzz of existing IPs for a longer period.
Patents and Trademarks
“Pop Mart International Group Limited (Pop Mart) (stock code: 9992.HK) was officially listed on the main board of Hong Kong Exchanges and Clearing Limited (HKEX) with an issuing price of HKD 38.50 per share, becoming the leading designer toy stock in China”, published by PRNewswire. The company has used its brand name and trademarks “POP MART” to gain popularity rapidly in China, with its slogan “To light up passion and bring joy”. Being the largest pop toymaker company in China, it owns 8.5% of China’s pop toy market share. As of June 30, 2020, Pop Mart has officially launched 93 IP trademarks, including 12 proprietary IPs, 25 exclusive licensed IPs, 56 non-exclusive licensed IPs, as well as 3.6 million registered members. As a pop toy company with a focus on artistic innovation, Pop Mart’s core is IP. As such, it has built a complete pop toy industry chain, including artists discovering, IP operation, consumer multi-channel access, as well as pop culture promotion, which has effectively developed the company’s brand awareness and stabilized its leading position in the domestic market. Also, the IP pool operated by Pop Mart has improved and maintained its competitive advantage in the industry, so the company never stops innovating in new IP creations.
Financial Analysis
Cash Assessment
Working capital turnover
Working capital is a measure of a company’s financial strength during operation and is usually used to measure the company’s liquidity, operational efficiency, and short-term financial status. The working capital turnover rate is the efficiency of the company’s use of working capital to support the company’s sales and actual growth. The higher the value of the working capital turnover rate, the better the efficiency of the company’s use of working capital.
Figure 1
As shown in Figure 1, Pop Mart’s total annual revenue in 2018 was 514 million yuan, while the working capital in the same year was only 110 million yuan. The company’s working capital turnover rate in 2018 was 4.671.
Figure 21
However, 2018 is just when Pop Mart has just begun to emerge in the toy market, and its company’s overall revenue will increase several times in 2019 and 2020. In 2019, the company’s annual revenue was 1.683 billion yuan, and this value rose to 2.513 billion yuan in 2020, and the total revenue growth rate for each year was 227.19% and 49.31%. Unfortunately, the surge in revenue did not bring about an increase in the turnover rate of working capital; in 2019, Pop Mart’s turnover rate increased slightly and then fell sharply in 2020, with an overall decline of 91.05%.
The main reason for this phenomenon is that Pop Mart increased a considerable amount of company assets in 2020, but the company’s liabilities, such as loans or accounts payable, have not increased. At the same time, the company’s full-year revenue in 2020 has not improved with a large amount of capital investment. This is the reason why Pop Mart’s working capital turnover rate plummeted.
Figure 3
As can be seen from the data in Figure 3, in the toy production industry, the average working capital turnover rate will be around 2.73. Although Pop Mart’s performance before 2019 was much higher than the industry average, in 2020, the company increased its holdings of a large amount of cash and cash equivalents, resulting in a poor performance in the turnover rate of working capital. This also means that Pop Mart managers cannot manage large companies and handle large-scale funds.
Not only that but from the 2020 annual report released by Pop Mart, it can be known that the company is currently hoarding a large number of goods that cannot be sold. Such a large number of finished products have not received effective marketing and sales methods, resulting in skyrocketing existing assets.
To solve this serious problem, we first need to find more effective marketing models and channels. In the current Chinese market, a relatively effective marketing model should be consumer communities to gather consumers and increase consumer loyalty and Internet celebrities marketing on social media. Moreover, inventory and production structure also need to be optimized. From the current point of view, productivity and sales capacity do not match; although this may be related to the sudden outbreak of COVID-19, it also shows that the company’s ability to resist risks needs to be improved.
Current Ratio
The current ratio can show the company’s use of existing assets; alas, the ability to repay short-term loans is an indicator of liquidity. Generally, a company’s current ratio should be floating above the industry average or slightly higher than the average. Too low a current ratio may indicate that the company’s ability to repay debts is low, while too high may indicate that the company cannot use assets to generate revenue effectively.
Figure 4
From 2018 to 2019, Pop Mart’s current ratio has been around 1.8; however, due to the substantial increase in existing assets, the company’s current ratio had increased to 9.4 in 20205. The high current ratio of Pop Mart also directly indicates that the company’s management personnel did not make good corporate plans in 2020, resulting in operational fluctuations.
Figure 5
By comparing the operations of Hasbro and BANDAI from 2018 to 2020, it can be concluded that the average current ratio of the top companies in the industry generally fluctuates around 2.86. However, after comparing the situation of Pop Mart with it, it can be seen that even within two years of stable performance, the company still has a considerable gap with the industry average. In 2020, the company’s current ratio was higher than the industry average. It’s close to 6.6.
From the calculated data, it can be seen that Pop Mart should increase asset utilization in the same way as a working capital turnover ratio; and expand sales channels and marketing methods to quickly and effectively sell inventory.
Quick Ratio
The quick ratio can be regarded as a risk indicator, which shows the ability to use the most liquid assets to repay the company’s existing debt without selling any existing company inventory and assets or obtaining external financing.
Figure 67
The data in Figure 6 shows that Pop Mart’s quick ratio and current ratio perform similarly. They performed well in 2018 and 2019, but the value skyrocketed in 2020. A higher quick ratio means that the company is more capable of repaying debts; unlike the current ratio, the data indicated by the quick ratio is more conservative, which means that Pop Mart can be repaying the company under extreme conditions of quick ratio short-term debt. For a toy production company, keeping the quick ratio within a specific range slightly higher than one is healthy; BANDAI and Hasbro have remained at around 2.26 most of the time. In comparison, Pop Mart’s quick ratio is not as strong as the other two companies, but it is still within an acceptable range.
At present, the quick ratio of Pop Mart is too high, just like the previous two ratios, because the company holds too high liquidity and cannot use it effectively. Thus, an appropriate increase in advertising, sales channels, or sales outlets to support expenditure and increase sales; or increase the financial leverage can help the company get rid of the excessive quick ratio.
Accounts Receivable Turnover
The account receivable turnover ratio is the ratio of net income to accounts receivable in a certain period. It shows the number of conversions of accounts receivable into income during this period. Under normal circumstances, the higher the account receivable turnover rate, the better, and the higher the turnover rate indicates that, the fewer credits, the quicker collection, and the shorter the age of accounts; strong asset liquidity and strong short-term solvency; can reduce bad debt losses.
Figure 78
By calculating the sales revenue and accounts receivable of Hasbro and BANDAI in the past three years, the two leading companies in the industry have very different account receivable turnover ratios. Among them, the value of BANDAI remained around 8.2, while Hasbro only remained around 3.68.
Figure 8
Unlike Hasbro and BANDAI, Pop Mart’s account receivable turnover ratio is surprisingly high. According to Pop Mart’s financial report, the company’s account receivable turnover ratio in the past three years is as high as 24.28, 31.83 and 28.96; this also means that it is about 20 higher in most cases the average of the other two companies9. Such a high account receivable turnover means that the company has a high proportion of high-quality customers, and the company’s accounts receivable collection efficiency is high, and debts can be repaid quickly.
Figure 99
However, such a massive gap in the account receivable turnover ratio also means that Pop Mart’s management may have adopted a more conservative shipping strategy; in other words, its trust in customers and retail stores is low, giving them the payment cycle is also relatively short. And this situation is likely to affect the motivation of customers to continue cooperation, especially when a large number of blind box toys appear in Pop Mart’s primary market.
In order to ensure that Pop Mart can remain competitive in future competitions with other powerful competitors that may emerge, it is necessary to relax the collection cycle for retailers gradually. Through the relatively loose collection cycle, retailers are more willing to cooperate with Pop Mart for a long time. As a result, other companies that may develop into the same size are also more challenging to surpass Pop Mart in market competition.
Inventory Turnover
Inventory turnover ratio is a ratio calculated using an enterprise’s operating cost, or cost of goods sold, and inventory balance in a certain period; therefore, the inventory turnover ratio represents the number of turnovers of an enterprise’s inventory time. By measuring the inventory turnover ratio of an enterprise, the liquidity of the enterprise’s inventory and the number of inventory funds occupied can be evaluated whether it is reasonable and effective.
Figure 10
Pop Mart’s financial reports for the past three years show that the company’s inventory skyrocketed in 2020, and this data has also frequently appeared in the previous ratio; it has increased from 9630200 in 2019 to 22536900 in 2020, an increase of 134.
However, with the increase in inventory, the inventory turnover ratio also decreases year by year. As a result, the percentage of Pop Mart declines by about 1.2 per year, from 6.97 in 2018 to 4.08 in 202010. This also means that Pop Mart’s sales capacity decreases year by year, and the inventory it holds is gradually overstocking.
Figure 11
In contrast, BANDAI’s inventory turnover ratio has always been better than Pop Mart. Since 2018, BANDAI has not fallen below Pop Mart’s value in three years. It is worth noting that the inventory turnover ratios of BANDAI and Pop Mart have similar changes in waste warehouses, and both start from a higher point to decrease year by year. Specifically, BANDAI dropped from 7.84 to 6.03, while Pop Mart dropped from 6.97 to 4.0811. Similar changes may be due to the outbreak of the COVID-19 pandemic between the end of 2019 and 2020, which led to a decline in sales.
Although Pop Mart’s inventory turnover ratio has been declining year by year, fortunately, its performance is still around the industry average. Therefore, what needs to be done at present is to store a reasonable number of products according to market demand and increase sales, especially to grasp the situation of China’s current market picking up and the weakening of pandemic influence.
Payable Turnover Ratio
The payable turnover ratio is a ratio calculated using accounts payable and the cost of goods sold. This ratio is usually used to compare with the industry average and the company’s historical level. As a result, the comparison results can reflect the company’s ability to repay short-term accounts payable within a certain period while also showing the company’s operating pressure.
The value of the Payable turnover ratio is inversely proportional to the average time to pay accounts payable. Therefore, when the payable turnover ratio gradually decreases, the company takes longer to pay the final payment to the supplier. Conversely, if the average time for the company to settle the balance is concise, the higher the payable turnover.
Figure 12
It can be concluded from figure12 that because Pop Mart’s cost of goods sold and the absolute value of accounts payable fluctuate to a certain extent and the fluctuations are relatively consistent, the company’s payable turnover ratio has been stable at around 2.4 in the past three years. The continuous change in the ratio means that the company is not in financial trouble and has sufficient capacity and funds to increase new business.
Figure 13
The data shown in figure13 shows that BANDAI’s payable turnover ratio and Pop Mart values show similar trends; they both experienced a small decline in 2019 and then returned to high points in 2020. The difference is that BANDAI’s payable turnover ratio is about 3.1 higher than Pop Mart’s overall value13. Such a numerical gap reflects that BANDAI has more bargaining power than Pop Mart when negotiating with suppliers and negotiating cooperation.
Hasbro, on the other hand, has the opposite performance from the other two companies. It had fallen from 1.7 in 2018 to 0.98 in 2020. This proves that the time it takes for Hasbro to pay the suppliers’ final payments is gradually increasing, and financial problems are likely to occur. But it is also possible that Hasbro has changed the way it works with suppliers.
By comparing the payable turnover ratios of the three companies, Pop Mart’s performance has always been around the average line, and its value has not seen a continuous decline or rise. In other words, Pop Mart’s performance in cooperation with suppliers is very stable; for the company’s operations, it is a very healthy performance.
Debt-to-Equity Ratio
The debt-to-Equity ratio is a value that can show the company’s financial leverage; in many cases, measuring the company’s D/E ratio can clearly show the extent to which the company supports daily operations through loans over a period. In other words, the level of a company’s D/E ratio directly reflects the ability to use shareholders’ equity to repay the company’s debts in the event of poor operations.
Figure 14
By consolidating and calculating Pop Mart’s liabilities and shareholders’ equity for the last three years, its debt-to-equity ratio fell sharply in 2020. Specifically, Pop Mart’s debt-to-equity ratio is 2020 is 70% lower than its 2018 value15. This magnitude of decline has never been seen in the historical financial records of the other two competing companies.
The reason for this extreme change is the dramatic growth of Pop Mart’s total equity in 2020. While the company’s liability increased exponentially, the company’s total equity increased by an astonishing ten times.
Figure 15
Although, a lower debt-to-equity ratio usually means that the company has a lower risk of repaying its debt. However, a low level of data over a certain level is likely to indicate that the company has not used loans reasonably to solve the company’s operating expenses, and at the same time, has not effectively used the assistance similar to tax shields brought by loans.
It can be concluded from the data in Figure 15 that the debt-to-equity ratio of BANDAI and Hasbro has not fluctuated much in the last three years. However, after comparing the data of the three companies together, it can be found that the leverage ratios used by each company are not the same. This noticeable difference may be caused by the conservativeness of the company’s decision-makers on the risk assessment and the strategy adopted.
Figure 16
For Pop Mart itself, the sudden plunge of debt-to-equity ratio is not in line with normal corporate operations. In addition, the line in figure16 indicates that the decrease in the debt-to-equity ratio of Pop Mart is caused by the surge in equity of parent stockholders and reserves/accumulated comprehensive income.
Cash from Operations
Cash flow from operating activities is an essential part of the cash flow statement. It is a set of values focusing only on the company’s core business. Therefore, the health of a company’s cash flow from operating activities determines the financial performance of the company’s core business. Moreover, by comparing the changes in cash flow value from operating activities at various stages, managers can better decide how much money needs to be invested in core business operations, recruitment, or future investment in the future.
Figure 17
After comparing Pop Mart’s cash flow statement from 2018 to 2020, the cash flow growth rate is impressive. In 2020 alone, the cash flow of the main business has increased by approximately 40% compared to 2019. Among them, the growth rate of cash generated from operating activities even reached 49. The sustained high growth in the past three years also shows that Pop Mart is now in a stage of rapid expansion.
In contrast, the performance of BANDAI’s cash flow has significantly fluctuated within three years. And overall, BANDAI’s cash flow from continuing operation is in a downward trend. BANDAI’s data has dropped from 79.8 billion in 2019 to 43.1 billion in 2020. This time the reduction has been astonishingly higher by -46%. However, Hasbro’s trend is the same as Pop Mart’s rise year by year within three years, and it is also the most significant increase in the cash flow of its primary business.
Combined with the market environment, Pop Mart’s cash flow performance is entirely satisfactory; although it does not have a very outstanding performance, it can remain above the industry average. However, because it is a young company, its overall financial and operational scale cannot be compared with an established company like BANDAI. Therefore, at present, the essential thing for Pop Mart is to continue to maintain a healthy cash flow. At the same time, according to the company’s large cash surplus and low leverage, use these surplus funds to stabilize the existing Chinese market and develop markets in neighboring countries.
Profitability Assessment
ROE
Equity income is the ratio between the company’s net income and shareholders’ equity. It is the profitability of a company’s shareholders’ equity and the efficiency of its use of the capital invested by shareholders in the company. When measuring a company’s ROE, what matters is the performance of the industry or its main competitors.
Generally, the higher the ROE value, the better, but this does not mean that a low ROE cannot be accepted. Since a company’s ROE performance largely depends on the comparison item, a low ROE is acceptable in some industries. However, we need to be wary that ROE should not be lower than the year’s interest rate.
Figure 18
Pop Mart’s ROE performance is volatile, and its data varies by no less than 30% annually from 2018 to 2020. Nonetheless, its ROE fell to 8.54% after violent fluctuations20. The main reason for this change is that the equity of Pop Mart has increased by nearly ten times in 2020, but operating income has not increased with the growth of equity. Fundamentally, Pop Mart’s ROE plummeted in 2020 is due to the company’s decline in sales.
Figure 19
At the same time, among the other two companies, the same situation as Pop Mart is Hasbro. They both rose in 2019 and then plummeted in 2020. However, although the two companies’ trends are similar, the ROE level of Pop Mart before the decline was at least double the industry average. Moreover, although the ROE of BANDAI also rose first and then fell in the trend, it remained at about 13%.21
BANDAI has a more stable operational performance among the three companies than the other two and can maintain its ROE within a certain level even under unexpected circumstances. This is also an ability that Pop Mart does not currently possess. But if Pop Mart can keep up with the growing blind box market and continue to increase its sales capacity in the future, its ROE will continue to grow.
Return on Assets
Return on assets is an important indicator often used in accounting and financial analysis. It is calculated from the two elements of net profit and total assets. As an economic indicator, ROA measures an enterprise’s ability to use priority resources to create profits. Thus, the higher the ROA performance of a company, it proves that the company’s asset utilization efficiency is higher, and it also shows that the company has a good effect in increasing revenue or saving funds. On the contrary, if the company’s ROA performance is poor or declines, it proves that its management has failed to guarantee its profitability. When using ROA to evaluate a company’s operations and financial status, it is generally a horizontal comparison with other companies in the same industry, and a vertical comparison with the company’s historical performance is also required.
Figure 20
Pop Mart achieved ROA value-added from 2018 to 2019, which proves that the company’s operating efficiency is outstanding during the past two years. It is a pity that in 2020 because the efficiency of operating income growth completely cannot catch up with the company’s asset growth, the ROA plummeted from 42.30% to 7.51.
In the past two years, many toys similar to Pop Mart’s products have been added to China’s domestic e-commerce platform. This may be one of the reasons for the company’s reduction in ROA in 2020. If this hypothesis is true, it proves that Pop Mart does not yet could lead the blind box market in China. Therefore, enhancing brand loyalty and launching more attractive products is what Pop Mart needs to focus on most.
Figure 2122
In the international market, Pop Mart’s performance is quite excellent. The ROA of BANDAI and Hasbro has not exceeded 10% in the last three years; this proves that Pop Mart has greater profitability than these two companies. However, BANDAI’s performance is worthy of reference for Pop Mart’s future operations among these companies because BANDAI’s ROA has been very stable in recent years. The steady ROA changes represent that the company is currently in a period of stable development.
Net Profit Margin
Net profit margin measures the ratio of operating industry revenue to overall revenue. This ratio can reflect whether a company’s operating costs, and indirect costs are effectively used and controlled. At the same time, the net profit margin can also effectively help investors or managers evaluate whether the company has obtained sufficient profits from daily sales. Simply put, the figure shown by net profit margin is how much of every dollar the company earns can be converted into net profit.
Figure 22
The net profit margins of Hasbro, BANDA and Pop Mart have shown the same trend in the last three years. Take Hasbro’s data as an example. Its data increased from 4.81% in 2018 to 11.03% and then fell back to 4.12% in 202023. BANDAI’s data trend also declined in 2020, but the only difference is that the floating scale of BANDAI’s net profit margin is not significant.
Figure 2322
Pop Mart’s net profit margin is excellent compared to other companies in the industry. Moreover, its value rose from 19.34% in 2018 to 26.80% and finally returned to 20.82% in 2020; even if its profit margin fell once, its overall value is still at least 10% higher than the other two competitors22. This general situation means that Pop Mart has good profitability, even when the company is not as big as the other two companies.
Assets Turnover Ratio
What Assets turnover can reflect is the operational efficiency of a company, and it is also an analysis of the flow rate of all assets from input to output during the company’s operation. Moreover, this value also reflects the flow rate of all assets from input to output during the operation of the enterprise and reflects the management quality and utilization efficiency of all assets of the enterprise. Thus, for a company, the higher the asset turnover rate, the better the performance of the company’s operations.
Figure 2422
From the changes in the numbers in Figure 24, we can see that the changes in Pop Mart’s assets turnover ratio and other ratios, such as profit margin and ROE, show the same changes. They all showed an upward trend from 2018 to 209, but they fell sharply in 2020. Therefore, when assessing Pop Mart’s asset turnover from the perspective of historical changes, its performance is unsatisfactory.
Figure 25
Horizontal comparison of Pop Mart’s asset turnover with other companies in the same industry shows that Pop Mart is similar to BANDAI before 2020. Not only that, in terms of overall values, Pop Mart is also at a relatively high level. However, unlike the other two companies, Pop Mart’s asset turnover ratio did not show a continuous decline. This result proves that Pop Mart could continue to rise and may return to the original development trend in the future.
Although Pop Mart’s assets turnover has specific development potential, the insufficient data in 2020 does show that the company’s current operations have problems that cannot be ignored. Since the total income and total assets are two core elements of asset turnover: thus, the more significant the change in these two items, the higher the asset turnover. Pop Mart’s assets have multiplied, basically several times each year; this growth trend has never appeared in other companies in the industry. In other words, the biggest problem with Pop Mart at present is that its assets cannot be used effectively.
Therefore, Pop Mart can now consider transferring most of the original outsourcing work back to its own company and consider increasing investment in overseas markets. For example, if it can be absorbed from China as the center and spread to Japan, South Korea, and Southeast Asia in the future, then the company’s asset turnover will return to the original growth curve.
Equity Multiplier
The equity multiplier is an indicator to measure the financial risk of a company. It can clearly show the part of shareholders’ equity in a company’s total assets; this part does not include the assets brought by debt. Thus, a company’s equity multiplier level can show that a company is accustomed to using large amounts of debt to finance business activities or is accustomed to using equity financing to maintain operations. Moreover, if the company’s equity multiplier is higher than the industry average, it means that the company may be under pressure in financial operations because they must generate more cash flow to repay debt.
Figure 26
Pop Mart’s equity multiplier has shown a downward trend in recent years, and the most significant year of decline was in 2020, from 1.80 to 1.1425. Notably, the reason that led to the reduction of Pop Mart’s equity multiplier is not reducing the company’s debt. Instead, the real reason for this decrease is the increase in Pop Mart’s shareholders’ equity. From the perspective of the company’s financial pressure, Pop Mart is gradually alleviating debt pressure.
Figure 27
By calculation, the average number of equity multipliers in the industry in the three years of 2018, 2019, and 2020 are 2.08, 1.97, and 2.06, respectively. Comparing two companies’ data of these three years with the data of Pop Mart’s corresponding year, it can be found that the equity multiplier of Pop Mart is not higher than the average level in the industry under any circumstances. In other words, Pop Mart does not rely on debt financing; its primary financing method should be stocked.
Nonetheless, Pop Mart’s equity multiplier, which has been decreasing year by year and has remained below the average in the industry, also means that the company’s debt pressure and risk are not high. At the same time, it may also mean that the company may not enjoy the competitive advantage brought by debt.
EPS
Earnings per share refers to the enterprise’s net profit or net loss that ordinary shareholders can enjoy for each share they hold. Earnings per share are usually used to reflect a company’s business results and measure the profitability of common stocks and investment risks. In addition, they are used by information users such as investors to evaluate the company’s profitability, predict its growth potential, and make relevant economic decisions—one of the essential financial indicators.
Since the three companies’ annual reports do not list the common share outstanding of each company, in this part of the analysis, the value of share issued will be substituted.
Figure 28
According to calculations, Pop Mart’s EPS has been in a state of growth in recent years; among them, the growth rate in 2019 was the highest, with an overall increase of close to 371%. At the end of 2020, Pop Mart’s EPS has increased from the original 0.07 to 0.3727. This proves that the company’s operating performance is gradually getting better.
Figure 29
Although the performance of Pop Mart has value-added potential from historical data, comparing its data with BANDAI and Hasbro’s EPS shows that its performance is not good in the industry. In addition, such EPS shows that Pop Mart’s rate of return on investment is not high in the industry, and investors may be deterred by the sluggish rate of return on investment.
Moreover, although the two companies BANDAI and Hasbro, have not issued new stocks for equity financing in recent years, their earnings have stabilized in a good position. This situation shows that these two industry leaders are already in a position with high-profit margins. As a rising star, Pop Mart should pay attention to this point, reduce the number and scale of equity financing, and instead use loans for financing. Not only that, as another component of EPS, operating income also requires more attention from Pop Mart. By maintaining the number of existing stocks and increasing sales channels and scale, EPS can improve in the future.
Gross Profit Margin
Gross profit margin is a value that measures corporate profits. In other words, this value shows the company’s profitability and the stability of its financial situation. At the same time, gross profit is the basis for business profitability. To make a business profit, a company must first obtain sufficient gross profit. With other conditions unchanged, a large gross profit and a high gross profit margin mean that the total profit will also increase.
Figure 30
Pop Mart’s gross profit margin is currently maintained at about 60%. This situation is because the production cost of blind boxes in the toy market is lower than other products, and this product has the characteristics of attracting customers to collect. If you only evaluate the gross profit margin of Pop Mart over the years, you can find that the company’s gross profit margin is already at a stable stage. If there is no new production technology to reduce costs, or the market price cannot be increased, the company will remain.
Figure 31
In the past three years, the average gross profit margin of the three companies is 50.73%; and from this value, Pop Mart’s performance is outstanding. Every year it can remain above the market average. It is worth noting that Hasbro’s gross profit margin has also maintained a slight increase. In this case, Pop Mart needs to continue to reduce the error rate when producing products and reduce the cost of production.
Operating Income Margin
Operating income margin refers to the operating profit from operations as a percentage of net sales or as a percentage of invested capital. This percentage can comprehensively reflect the operational efficiency of an enterprise or an industry. As a result, operating profit margins vary significantly between sectors and companies in the same industry, and not all companies can make profits every year.
Figure 32
Although the operating income margin of Pop Mart fluctuates, it is rising. This shows that the products sold by Pop Mart provide high operating profit, and the company’s profitability is also increasing.
Figure 33
Hasbro’s operating income margin has shown a fluctuating upward trend in the last three years. Its value has increased from 7.23% in 2018 to 13.18%. However, BANDAI’s data keeps floating around 11. The data of these two companies have not reached half of Pop Mart’s at any time, proving that Pop Mart has a more competitive advantage in the industry.
To maintain a competitive advantage on the operating income margin in the future, Pop Mart can increase sales or reduce costs. However, increasing sales will usually increase costs, and reducing costs may result in lower product quality or employee departure. Thus, expanding the company is a way to reduce production costs without losing quality.
Income Before Tax Margin
Similar to the previous value, income before tax margin is also a tool to measure the company’s operating efficiency. It shows the ratio of sales that can be converted into profits. In other words, the number of incomes before tax margin is the profit generated by each dollar of sales.
Moreover, the data shown by income before tax margin will not be affected by changing tax rates. Therefore, if a company operates in a higher tax environment when comparing within the industry, its operating profitability will be affected. Underestimate. Thus, it can more clearly reveal the actual operating conditions of the company.
Figure 34
The changes in income before tax margin of the three companies in the past three years are similar, and they all reached the highest value in three years in 2019. However, the importance of the three companies is very different, the lowest is Hasbro, and the highest is Pop Mart; the two have been close to three times the value gap in the past three years.
In these three years, the income before tax margins of the three companies was 14.33%, 20.33% and 15%, respectively; and the three-year average was 16.56%. From these averages, Pop Mart’s performance has always been at the forefront of the industry.
Figure 35
Pop Mart’s income before tax margin has risen and fallen by a large margin, from 26% in 2018 to 28% in 202034. This trend of change proves that Pop Mart can become a company with an efficient business model and bargaining power. However. It also pointed out that Pop Mart has not fully maintained a healthy and efficient operation. In future operations, the management should find a balance between increasing sales and reducing overall costs.
Recommendation
From the market point of view, Pop Mart needs to explore more markets, not limited to the Asian market, such as the North American market with high spending power, the European market, the South American market, where the spending power is extremely strong and the demand for blind boxes is rising every year. Pop Mart needs to increase its market share by increasing sales, as a new industry, market share is dominant. Secondly, the target users besides the post-95s, Pop Mart can expand the user group to more people, and let more people of different age groups start to contact the blind boxes through targeted product design, after all, the user base is the basis of sales and profits.
Then, if Pop Mart wants to enter other markets faster, it can merge the blind box brands and companies that already exist in other markets by means of mergers and acquisitions. It is important to know that the best way to enter a market is to directly merge with well-known brands that already exist in the local area, because these brands already have enough user base in the local area, thus Pop Mart does not need to spend more money on advertising and promotion. By means of mergers, one can rapidly expand one’s market share, and in addition, the synergies created by mergers and acquisitions can grow the company’s share price and equity in a short period of time.
Judging from the current financial situation, Pop Mart’s asset growth rate and range are very high, which should have proved that the company’s operations are healthy. However, Pop Mart’s primary business income did not increase as the company’s assets increased. This shows that Pop Mart’s top priority is to increase the sales volume of its primary business.
If it is necessary to increase the sales volume of the main business, it is essential to expand the existing market and develop new overseas markets. Today, although the remaining competitors have high operating efficiency, Pop Mart has a competitive advantage in terms of profit margin and gross margin. Suppose the industry map is expanded overseas and the cooperation relationship with overseas retailers is tightened, then in the future competition. In that case, it will compete with the other two companies by using its cost advantage.
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