CICC has released a research report maintaining its adjusted net profit forecasts for BLOKS (00325) at 870 million yuan and 1.07 billion yuan for 2026 and 2027 respectively. At the current share price, the stock trades at 17.6x and 13.9x P/E for those years. The firm reaffirms its Outperform rating and a target price of HK$90, which corresponds to 22.3x and 17.6x P/E for 2026 and 2027, implying a 26.8% upside.

The company's first-half 2026 results exceeded the investment bank's expectations. BLOKS reported revenue of 1.78 billion yuan for the first half of 2026, a 32.7% year-on-year increase, which was in line with forecasts. The company noted that the adult product line and overseas revenue share grew faster than anticipated. Adjusted net profit reached 401 million yuan, up 25.1% year-on-year, surpassing CICC's estimates, primarily due to ongoing cost optimization and better-than-expected gross margin improvements from new products. The board also declared an interim dividend of HK$0.3247 per share.

Regarding the product categories, assembly role-play toys generated 1.59 billion yuan in revenue, up 19.6% year-on-year. Building block vehicle revenue reached 190 million yuan, accounting for 10.4% of total revenue, with strong sales momentum even after price increases. By consumer positioning, revenue from products aimed at customers aged 16 and above surged 124% to 440 million yuan, with its share of total revenue increasing by 10.2 percentage points to 25%. Revenue from 9.9 yuan products grew 61% to 350 million yuan, representing 19.5% of total revenue, a year-on-year increase of 3.4 percentage points but a sequential decline of 1.1 percentage points. The company expects this share to be controlled within 20% for the full year.

Geographically, domestic revenue grew 15% to 1.41 billion yuan, while overseas revenue soared 229% to 370 million yuan. Broken down by region, the Americas, Asia, and other regions including Europe saw revenue growth of 349%, 111%, and 365% respectively. CICC attributes this strong overseas performance to the expansion of intellectual property and the payoff from accumulated channel development.

The gross margin for the first half of 2026 was 44.3%, a decline of 4.1 percentage points year-on-year. CICC believes this was mainly due to higher amortization costs from initial molds for many new products, the building block vehicle production line still being in its ramp-up phase, and an increased share of the 9.9 yuan product line year-on-year. Total expense ratios decreased by 3.4 percentage points year-on-year, reflecting steady improvements in operational efficiency. Specifically, the research and development expense ratio fell by 2.2 percentage points, demonstrating clear operating leverage. As a result, the adjusted net profit margin was 22.6%, a decline of 1.3 percentage points year-on-year. The investment bank believes that costs such as mold amortization and overseas warehousing are upfront investments. As production volumes increase and building block vehicle costs continue to decline, the profit margin is expected to stabilize and improve.

CICC views the company's comprehensive strategy as progressing well and is optimistic about its global potential. Overseas, the company is increasing penetration in North America and expanding into new regions in Europe. Its IP portfolio is becoming more diversified, with the share of Transformers declining and Japanese IPs proving popular in Europe and the US. Operationally, the reach of the BFC tournament and overseas fan community and after-sales service system now covers 17 and 42 countries respectively, steadily enriching the fan creation ecosystem. In terms of product categories, the company will continue to focus on proven, scalable categories. It will accelerate the differentiation of building block vehicles and develop the Natural Collection line towards collectible, high-ticket items. CICC maintains a positive long-term view on the company's diversified growth drivers under its comprehensive strategy.

Risk factors include intensified competition, loss of licensed IP, underperformance of new products, and fluctuations in raw material prices.