Hong Kong Concept Tracking | Toys Enable AI to be Widely Applied in Physical End, Institutions Optimistic about Accelerating Commercialization of AI Toys (with Concept Stocks)

At this year's CES exhibition, a large number of AI toys, AI pets, AISiasun Robot & Automation, and AI robot dogs emerged, and the core reason is still the strong support of advances in underlying AI technology, allowing AI to be widely applied in physical products. A Founder report states that the AI toy market is on the verge of exploding, with vast potential. China's toy market has reached a size of billions, becoming an important global producer and consumer of toys, and is expected to continue to grow steadily in the next five years. IP toys, as well as character toys based on IP, are expected to outperform other categories in growth and continue to increase market share. With the continuous improvement of AI large model capabilities, its conversational interaction, question and answer capabilities, and even emotional companionship capabilities are expected to migrate from online to offline, making AI toys one of the physical carriers of AI large models, and the market share of AI toys is expected to continue to increase. AI toys may bring incremental benefits to IP licensing. On the one hand, with reference to the overseas AI role-playing dialogue platform Character.ai, users prefer dialogue characters that are mainly based on well-known anime or game IP, indicating that users naturally have a higher recognition and preference for known IP characters. On the other hand, unlike apps or web pages, AI toys are sold directly to consumers and are profitable commercial activities, which may need to obtain clear IP authorization to ensure non-infringement, so IP licensing fees will become an important expense for AI toy companies. CMSC released a report stating that at the recent CES exhibition, various AI toy products were displayed, and one hardware product in the shape of a pet, Siasun Robot & Automation Ropet, attracted wide attention. With the continuous rapid iteration of large models in multimodal capabilities both domestically and internationally, the combination of AI technology and trendy toys also provides new ideas for the landing of AI companionship scenarios at the edge. With active layout by manufacturers both domestically and internationally, and impressive product performance, it is expected that the landing and commercialization of AI toys will accelerate. It is recommended to pay attention to companies related to "toys + high-quality IP + large models" for potential benefits. AI toy-related industry chain Hong Kong stocks: BLOKS(00325): BLOKS is a leader in role-playing toy construction in China, focusing on providing consumers with good but inexpensive wide-ranging role-playing toy products through more than 500 patent layouts, original IP capabilities, and non-exclusive cooperative relationships with about 50 well-known IPs, and has achieved rapid growth. In the year 2023 and for the six months ended June 30, 2024, most of the company's revenue came from the sale of products based on the Ultraman IP, accounting for 63.5% and 57.4% of revenue, respectively. The scale of the domestic role-playing toy construction market is expected to grow from 5.8 billion yuan in 2023 to 32.5 billion yuan in 2028, with a CAGR of 41.3%. It is expected that by 2025, role-playing construction will surpass building construction to become the largest sub-segment in the construction toy category. CHINA LIT(00772): Goldman Sachs pointed out that with Tencent's patience, balanced execution, and transformation thinking over the years, the company has shown consistent leadership in platform leadership, becoming a leader in multiple Internet fields such as Tencent Video, payments, and games. In terms of generative artificial intelligence, the company focuses on key resources and diverse strategies to explore AI opportunities. Its cloud computing, high-performance computing, and increasingly mature data capabilities are believed to have narrowed the gap with its domestic and foreign counterparts, and the company plans to explore opportunities for generative AI. In terms of Tencent Video, the bank believes that the company is gradually entering a period of high-quality content creation, maintaining control over operating expenses, and achieving healthy profitability. As for the development of three aspects of intellectual property in reading literature, Tencent is expected to monetize key IP in online literature in various entertainment formats. POP MART(09992): POP MART's sales in the Chinese market in the fourth quarter of last year accelerated compared to the previous quarter, while overseas markets continued to achieve exponential growth. Citigroup previously stated that POP MART is the largest pop toy company in China, with strong IP incubation and monetization capabilities, as well as a growing global footprint and name recognition. With its diverse IP characters and content-driven market strategy, the company seems ready to capture the emerging "spiritual consumption" of young consumers. Citigroup believes that POP MART's IP commercialization is likely to extend beyond pop toys. Pop toys are affordable entertainment choices for consumers and are also one of the consumer categories that the bank is most bullish on.