Deutsche Bank keeps Pop Mart sell rating, sees 35% Q3 revenue decline

Deutsche Bank maintained its sell rating on Pop Mart International Group Ltd. with a HKD 140 target price, citing IP cycle fatigue and slowing revenue growth.

"The Labubu 4.0 launch generated weaker-than-expected demand, with secondary market prices dropping to about 50 yuan, well below the 159 yuan retail price," the Deutsche Bank analysts wrote in a July 8 report.

The bank forecasts Q2 2026 revenue growth slowing to about 1.6% year-over-year, down from 75% to 80% in Q1. For the second half, DB projects Q3 revenue falling 35% and Q4 declining 18% year-over-year. Full-year 2026 revenue is expected to reach about 35 billion yuan, down 6% from 2025, with adjusted net profit of about 11 billion yuan — 20% below the Bloomberg consensus estimate of 14.3 billion yuan.

The report signals a potential inflection point for the collectibles company, which rode a wave of global demand for its Labubu and Molly IPs. Pop Mart shares traded at HKD 154.90, implying about 10% downside to DB's target. The bank flagged promotional destocking across China, Southeast Asia, and Europe as a margin risk.

Deutsche Bank's channel checks showed Labubu 4.0, marketed as THE MONSTERS Hair Salon series, underperformed despite pre-launch buzz from a FIFA World Cup sponsorship and endorsements from Blackpink's Lisa. Standard edition secondary prices fell below 50 yuan within a week of release, a steeper discount than prior series.

The bank identified discounting across multiple markets. In China, Pop Mart offered tiered discounts and blind-box bundles during the June 618 shopping festival. Similar promotions appeared in Indonesia, Singapore, and Thailand, while third-party retailers in Europe and the US offered about 20% direct discounts.

By geography, DB estimates China sales grew about 15% in Q2 but may turn flat or negative in the second half. Overseas sales are expected to decline about 19% in Q2, reversing Q1's roughly 40% growth, with Q3 and Q4 overseas declines of 50% and 34%, respectively.

The sell-side call is a contrarian stance. Pop Mart's rapid international expansion and IP pipeline have drawn bullish coverage from most covering analysts, with consensus still expecting full-year profit growth. DB's forecast implies the IP cycle has peaked, with no new blockbuster character ready to replace Labubu's revenue contribution. Investors will watch upcoming monthly sales data for signs of whether the slowdown is a temporary trough or the start of a prolonged deceleration.

This article is for informational purposes only and does not constitute investment advice.