Fresh from its success with Labubu, Pop Mart International is on another hot streak in intellectual property (IP) merchandising as consumers snap up its toys based on China’s highest-grossing Ne Zha 2, leading US investment bank Morgan Stanley to name the stock among its top picks. Pop Mart’s Ne Zha toys sold out days after their release on Jan 30 as the animation broke local box-office records, according state-run China Movie Database on Thursday. The sequel also overtook The Battle at Lake Changjin in all-time ticket sales following its stellar Chinese New Year holiday run. The frenzy is a repeat of Pop Mart’s success in capitalising on its Labubu toys, a toothy but adorable elfin beloved by millions of Asian fans, including a member of K-pop group Blackpink. The formula helped propel its sales outside China and fan a 350 per cent rally in its stock in Hong Kong last year. “We expect Pop Mart to become one of the go-to partners for global major IP owners that intend to monetise and extend IP popularity through IP toys,” Morgan Stanley analysts including Dustin Wei and Carol Xia said in a report. Its success underlines its influence in the IP strategy, they added.

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Third-party IPs like Ne Zha only counted for 15 to 20 per cent of Pop Mart’s revenue, but they helped the brand gain new customers effectively, the analysts said.

Ne Zha 2 is a sequel to a 2019 fantasy adventure featuring a protective deity in Chinese mythology. It had raked in more than 6.5 billion yuan (US$892 million) in ticket sales as of late Thursday (Feb 6) and will be released in other countries including the US, Canada, Australia, and Singapore later this month.

Pop Mart’s shares fell 2.1 per cent to HK$99.40 on Thursday, giving it a market value of HK$133.5 billion. Still, they have risen 441 per cent over the past 12 months as the “blind-box economy” expanded, while the Hang Seng Index gained 28 per cent.

Morgan Stanley expects a strong upgrade in the company’s earnings this year, after they jumped 70 per cent from a year earlier to 3 billion yuan in the first half of 2024, according to its stock exchange filing. Revenue from outside China grew 260 per cent to 13.5 billion yuan, or almost 30 per cent of the total.

Pop Mart’s Ne Zha toys are being sold on Xianyu, a second-hand goods trading platform, for as high as 180 yuan versus their retail price of 69 yuan. Pop Mart has adjusted its production schedules to meet demand for its toys, according to local media reports on Thursday.

Labubu toys are also in short supply after a speculative fervour last year. But the prices have weakened as Pop Mart stepped up production to improve brand accessibility and fan experience.

“We see Labubu’s plush is still selling very well, with restocked products gone fast,” Morgan Stanley said. “We are optimistic about [Pop Mart’s Lunar New Year] sales in Asia.”

Pop Mart had 374 retail stores and 2,189 vending machines in China as of June 2024, according to its interim report. It also operated 85 stores and 143 vending machines across Hong Kong, Macau, Taiwan and other overseas markets, more than double from a year earlier.

This article was first published on SCMP.