Zheshang: China is currently at the starting point of the spiritual consumption era. The core consumption motivation of trendy products is diversified.

Zheshang released a research report stating that the Chinese entertainment industry is projected to reach nearly 2 trillion market in 24 years, with a CAGR of nearly 14% in the past 5 years. Among them, the toy trend market is nearly 900 billion. The ceiling of toy trend operation lies in shaping IP, which can open up a larger market through licensing and adaptation, with the IP authorization market size exceeding 150 billion yuan, and the IP adaptation market size nearing 600 billion yuan. From the demand side, compared to the starting point of the creative cultural industries in the United States and Japan, China's per capita GDP has exceeded $10,000; currently, there are 500 million users of the broad second dimension in China, with the Z generation growing as the main consumers, and healing/looks/IP/social interaction as the core consumption motivations for toy trend products. Zheshang's main points are as follows: Current development status of the toy trend industry in China? The toy trend industry in China has a wide market, high prosperity, and greater potential for expansion. The Chinese entertainment industry is projected to reach nearly 2 trillion in 24 years, with a CAGR of nearly 14% in the past 5 years, among which the toy trend market is close to 900 billion. The ceiling of toy trend operation lies in shaping IP, which can open up a larger market through licensing and adaptation, with the IP authorization market size exceeding 150 billion yuan, and the IP adaptation market size nearing 600 billion yuan. China is at the starting point of a spiritual consumption era, with an accelerating trend in recent years 1) Demand side: compared to the starting point of the creative cultural industries in the United States and Japan, China's per capita GDP has exceeded $10,000; currently, there are 500 million users of the broad second dimension in China, with the Z generation growing as the main consumers, and healing/looks/IP/social interaction as the core consumption motivations for toy trend products. 2) Supply side: high-quality games/animations/novels such as "Black Myth: Wukong" frequently emerge in China, giving rise to domestic IPs; high-quality toy companies such as POP MART/Card Game/BLOKS are on the rise, improving the supply of quality products; Gudian Store has begun a nationwide acceleration in store openings. 3) Toy trends going international are the core of the next phase. The Kidult trend in Europe and the US is rising, with Southeast Asia's increasing economic levels stimulating spiritual consumption demands, making China's toy trends going international have advantages in product and supply chain. Toy trend category analysis Which categories are more favorable? 1) Market size: Building Blocks > Handicrafts > Cards > Plush, influenced by differences in target groups and average prices for different categories; 2) Market growth rate: Cards > Handicrafts > Building Blocks > Plush, which is related to the maturity of different categories in China's development; 3) Competition landscape: Building Blocks > Cards > Handicrafts > Plush > Badges, determined by differences in business models and barriers. What are the differences in business models of different categories? The toy trend business models are divided into IP and operations, forming a balance between the two ends, with different categories having different emphases. The smaller the differentiation space that operations can do (such as product craftsmanship and gameplay), the more dependent on IP, typical of badges/stands. At this point, in order to construct absolute barriers, self-owned exclusive IPs are necessary. If reliance on third-party IPs is needed, the scale or second creation operation capabilities are the key to obtaining top IPs. For categories that focus more on operations, such as building blocks and cards, due to their unique gameplay and strong interactivity, operation barriers are higher, and the landscape is easier to concentrate. Toy trend company competitive analysis Reviewing global toy trend companies, they are divided into four tiers: 1) The first tier is Disney, building the Disney IP universe and laying out the full ecosystem of IP operations; 2) The second tier includes LEGO and Bandai Namco, with LEGO occupying the advantage in the blocks category, and having deep barriers in product operation and manufacturing; Bandai Namco is a symbiotic body of the Japanese animation industry, with a comprehensive lineup of IP operations; 3) The third tier includes Hasbro and Mattel, both with top global toy IPs and the ability to contentize toy IPs, holding multiple high-value global toy brands. 4) The fourth tier includes differentiated product companies such as Pokemon, FUNKO, and POP MART. The formation of the four-tier structure is due to the differences in the competitive strengths of toy trend companies. In summary, the competitive strengths of global toy trend companies are composed of IP, category, and operations, with IP and category determining the company's ceiling and operations determining the lower limit. POP MART has the ability to enter the third tier. Investment recommendations For companies with high barriers and scarce resources in IP rights, as well as wide extension space, it is preferred to select companies with strong self-owned IP/systematic IP operation capabilities that occupy advantageous categories. It is recommended to invest in POP MART (09992), MNSO (09896), Shanghai M&G Stationery Inc. (603899.SH), and pay attention to BLOKS (00325), Card Game (not listed), Guangbo Group Stock (002103.SZ), Shanghai Yaoji Technology (002605.SZ), Guangzhou Wahlap Technology Corporation (301011. SZ), Alpha Group (002292.SZ), and other companies. Risk warning Industry demand may not meet expectations; intensified industry competition; overseas expansion may not meet expectations, etc.