Before Pop Mart's earnings report, Deutsche Bank loudly calls for a sell: overseas cooling, domestic weakness, and the full year may turn to negative growth.

Before Pop Mart's earnings report, Deutsche Bank loudly calls for a sell: overseas cooling, domestic weakness, and the full year may turn to negative growth.

Renowned investor Duan Yongping’s high-profile increase in holdings boosted market sentiment, with Pop Mart’s stock price surging nearly 6% at one point on Friday. However, Deutsche Bank released a research report the previous day, maintaining a sell rating on the trend toy giant and lowering its target price from HKD 157 to HKD 140, which implies about 14% downside compared to the current market price.

On the social platform "Snowball," Duan Yongping stated that he had swapped all his coal stock holdings in China Shenhua for Pop Mart, joking, "Shenhua is a very good company. We’ve had great returns from our investment. Thank you, and we’ll come back again if there’s a chance." This remark quickly triggered market followers, with Southbound funds and retail buying pouring in, becoming the main catalyst for the recent stock price rebound.

However, Deutsche Bank analyst Sammi Xu issued a clear warning regarding Pop Mart’s fundamentals in a first-quarter preview report on May 7: Overseas markets continue to weaken quarter-on-quarter, and the domestic IP popularity is waning; if the current trend continues, full-year revenue in 2026 could experience negative year-on-year growth.

Deutsche Bank's forecast is significantly at odds with the mainstream market opinion. The bank expects Pop Mart’s adjusted net profit in 2026 to be RMB 11.5 billion, down 12% year-on-year and about 24% lower than the consensus estimate of RMB 15.2 billion. Deutsche Bank also lowered its full-year revenue forecast by 14% to about RMB 36.5 billion, and cut net profit forecasts from 2026 to 2028 by 16% to 28%.

Duan Yongping's Increased Holdings Boost Sentiment, Stock Price Short-term Rebound

The core force driving Pop Mart’s recent strengthening stock price came from the continued remarks and actions of renowned investor Duan Yongping. According to Deutsche Bank’s report, Duan Yongping manages over USD 17 billion in US stock assets via H&H International Investment, known for his deep value and long-term investment style. His bullish commentary on "Snowball" has significant appeal to retail and Southbound investors.

Deutsche Bank’s report shows that in April, Duan Yongping sold a large number of Pop Mart put options at strike prices between HKD 145 and HKD 150. If all options were exercised, his holdings would amount to about 3% of Pop Mart’s total shares. After the April option expiry, he continued selling puts with a HKD 155 strike price.

On May 7, he further announced the sale of other Hong Kong stock holdings and directly bought Pop Mart shares. These moves continued to drive Southbound fund inflows and retail attention, becoming the main source of recent stock price momentum.

Q1 Preview: Overseas Markets Decline Sharply QoQ, Domestic Supported by Low Base

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

By region, domestic market revenue is expected to grow 85% YoY in Q1, mainly driven by holiday sales peak and low base, with online sales up 86%, and offline same-store sales growth (SSSG) at 42%. However, Deutsche Bank shows clear caution regarding overseas quarter-on-quarter trends: the bank expects overseas sales to decline 27% QoQ, with Europe down the most at 41%, North America down 36%, and Asia relatively resilient with an 18% decrease. Though overseas markets still have about 60% YoY growth, this is mainly due to an extremely low base in Q1 2025 and may not reflect true demand momentum.

Deutsche Bank also notes a split in market interpretation of this management conference call—some investors consider it a positive sign of improved transparency, whereas others see the delay in reporting operating data and the arrangement of the first earnings call as a warning signal for potential downside risk.

IP Fatigue Spreads, Signs of Structural Slowdown in Domestic Market

Deeper concerns remain that the core IPs of Pop Mart are losing popularity in the domestic market. The report points out that "The Monsters" (Labubu) and "Twinkle Twinkle" series recently released have seen their prices clearly fall in the secondary market. Among them, Monster x Sanrio co-branded models are trading at a 40% discount compared to retail prices; the latest "Twinkle Twinkle" series is also trading at a discount and did not replicate the premium effect seen previously in the Labubu series, disappointing prior expectations for similar performance.

Deutsche Bank extrapolated the March 2026 monthly e-commerce trend to year-end, with results showing domestic e-commerce sales in H2 2026 may drop 17% YoY. Based on this, the bank believes a structural slowdown in Pop Mart’s domestic market may have already begun in Q1.

For quarterly QoQ forecasts, domestic market changes in 2026 are expected to be -19%, -2%, +14%, and -9%, with the overseas market at -27%, -4%, +12%, and -5%; full-year revenue is expected to drop about 2% YoY. Q3’s brief rebound mainly relies on the launch of "Labubu 4.0" and World Cup-related sales boosting figures.

Profit Forecast Far Below Consensus, Operating Leverage Faces Reversal

Deutsche Bank’s profit forecast for Pop Mart in 2026 diverges significantly from mainstream expectations. The bank expects full-year revenue at RMB 36.5 billion, about 20% below the consensus estimate of RMB 45.5 billion; adjusted net profit of RMB 11.6 billion, about 24% below consensus of RMB 15.2 billion; and EPS of RMB 8.51, about 25% below market expectations.

In addition to sales pressure, reversal of operating leverage will further erode profit margins. In 2025, Pop Mart’s EBIT margin reached a high of 45%, far exceeding the industry average of below 20%, but as same-store sales growth slows, coupled with high fixed costs for flagship stores in core business districts in Europe and America, profit margin contraction is a significant concern. Moreover, the sharp rise in inventory levels at the end of 2025 prompted Deutsche Bank to alert on potential inventory backlog and clearance risks, believing this could further harm brand value and financial soundness.

Deutsche Bank lowered net profit forecasts for 2026 to 2028 by 16% to 28%, and reduced its DCF target price from HKD 157 to HKD 140, corresponding to a 2026 expected PE ratio of 14x. The bank maintained a sell rating and pointed out the current stock price of HKD 162.2 corresponds to an expected 2026 PE of about 16.4x, suggesting further downside in valuation.

Investors Focus on Four Main Issues, Labubu 4.0 Becomes Key Variable

The report outlined the four main topics investors are focused on ahead of the upcoming management conference call.

First, quarter-on-quarter sales trends across overseas regions. Since Pop Mart usually discloses only YoY growth rather than absolute sales numbers, the market lacks official QoQ data and investors urgently want to understand true momentum in each region.

Second, the latest sales performance in April and May. Since the earnings conference will be held in mid-May, the market hopes to get updates on sales trends since the end of Q1.

Third, guidance on full-year operating profit margin. Management once mentioned at the 2025 full-year results meeting that operating profit margin narrowed only about 1 percentage point in the first two months of 2026, but Deutsche Bank believes monthly softness in domestic sales post-Chinese New Year and high operating costs at overseas flagship stores will make it hard to sustain that margin level.

Fourth, the progress of "Labubu 4.0" launch. Pop Mart Chairman Wang Ning recently hinted in an interview that the series would bring "new content," but its release has already been postponed. The market is closely evaluating whether this IP can generate enough incremental sales to reverse the brand’s sliding popularity.

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