China Toymaker Pop Mart Jumps 80% in Hong Kong IPO

Shares in China’s toymaking sensation Pop Mart International Group Ltd. nearly doubled in its first day of trading Friday in Hong Kong, as its highly anticipated IPO capitalized on its distinctive “blind box” retailing technique and turned its 33-year-old founder into a multi-billionaire.

Since it opened a decade ago, Pop Mart has attracted an adoring fan base for its popular lines of dolls and other collectible figurines sealed in colorful but opaque packages that shrouds the toy-buying experience in mystery and keeps consumers coming back for more.

Reflecting what the company said was heavy demand by both institutional and retail investors, Pop Mart’s stock shot up 112% to HK$81.75 ($10.50) per share at the opening of trading before simmering down during the day and settling at HK$69, up 79% on Friday.

The floatation comes one day after the country’s fastest-growing toy company priced its shares at HK$38.5 per share, the top of its potential range. Friday’s trading pushed the company’s total valuation to $12.5 billion.

Founder and Chairman Wang Ning, owner of just less than half of Pop Mart following the sale of public shares, added more than $6 billion to his net worth over the day of trade.

Demand for Pop Mart’s new listing — 136 million shares in total — was high with the institutional portion oversubscribed by 43 times and more than 356 times for shares available to retail investors, according to company filings with the Hong Kong Exchange. In response, the Beijing-based company said it raised the retail portion in the deal from 12% to 47% and narrowed the institutional chunk to 53%.

Nonetheless, the company has faced sales headwinds during the pandemic this year and is looking to develop more of its own toy brands rather than relying on licensing deals with the likes of existing partners Walt Disney or Universal Studios.

“Pop Mart’s next test is to convince investors it has what it takes to return to pre-Covid growth and margins,” Michael Norris, a Shanghai-based analyst at consultancy AgencyChina, told Caixin. “Much of this comes down to how well it is able to manage existing IP,” he said, referring to intellectual property, “as well as bring new IP to market.”

Pop Mart has evolved its business model over only the past four years by transforming from a seller of other companies’ toys to a developer and seller of its own intellectual property. As of June, Pop Mart held 93 copyright licenses for its products, 25 of which were exclusive and 12 were for self-designed models. Its standout “Molly” series of figurines and toys is one of its oldest self-developed product lines, and accounted for more than 30% of company sales last year.

Before the pandemic deflated its brick-and-mortar sales in its brightly lit shops, Pop Mart held a leading 8.5% share in the fragmented $3.15 billion Chinese retail toy market last year, according to research firm Frost & Sullivan. Its half-year revenue growth significantly decelerated this year to 50.5% year-on-year from more than 200% in both 2018 and 2019, the prospectus shows.

Likewise its half-year profit growth slowed to 24.4% after more than quadrupling during the whole of 2019.

The Covid-19 outbreak in January and subsequent restrictions on public mobility dragged down sales of toys at Pop Mart stores, which fell by 23.1% in the first half of 2020. In comparison, same-store sales registered heady 60% year-on-year increases in both 2018 and 2019.

The Beijing-based company had 136 retail stores and 850 automated vending machines across the country as of June, while also hosting a significant online presence. But it was forced to temporarily shutter 88 toy shops during the pandemic, according to its share prospectus.

The company’s flagship “blind box” products, however, remained robust. Sales boomed thanks to the intangible elements of mystery and surprise, which means buyers can’t see what they’re getting until after a purchase. Sales in that category grew 70.5% in the first nine months of this year.

One-third of the proceeds from its IPO will be used to expand consumer channels and open markets overseas, while more than one-fifth will be earmarked for investing and acquiring manufacturer and distributor companies in its supply chain, according to its company filings.

Contact reporter Anniek Bao (yunxinbao@caixin.com)

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