Guotai Haitong: The demand for trendy toys has long-term sustainability, while globalization and group integration will become the main growth directions in the next phase.

Guotai Haitong published a research report stating that, against the backdrop of continued growth in spiritual consumption, the demand for trendy toys possesses long-term sustainability. The creation of hit IPs requires four essential elements: timing, innovation, mentality, and accumulation. Instead of focusing solely on single hit IPs, greater attention should be paid to the IP creation capability of trendy toy companies. The competitive advantage of trendy toy companies lies in their ability to establish a business system around IP creation, channel development, marketing conversion, and community ecology. The main competitive barriers are reflected in the four stages of IP creation, channel development, marketing conversion, and community ecology. Globalization and group formation will become the main growth directions for the industry in the next phase. Guotai Haitong's main points are as follows: Is the demand for trendy toys sustainable? The appreciation of art runs through human development; trendy toys are commercialized products of contemporary art, centered around IP and embodying cultural expression and collectible attributes. Their value is primarily reflected in three aspects: emotional, social, and investment. Emotional value forms the foundational base for trendy toy consumption, social sharing expands user circles, while scarcity and collectible transactions further enhance product value. In the context of continued growth in spiritual consumption, the demand for trendy toys has long-term sustainability. What is required for an IP to explode and maintain popularity? Creating a hit IP requires four elements: timing, innovation, mentality, and accumulation. LABUBU transitions from long-term incubation to global outreach, reflecting that a hit is the result of the accumulation of IP, product innovation, and favorable external timing. After an IP's explosion, companies still need to capture traffic through content engagement, product iteration, and meticulous management. The decline and recovery of Sanrio's performance indicate that operations can influence the value release of mature IPs to a certain extent; however, operations cannot eliminate the non-linearity of a single IP's life cycle. Instead of focusing solely on single hit IPs, more emphasis should be placed on the IP creation capability of trendy toy companies. How do trendy toy companies express their competitive advantage? The competitive advantage of trendy toy companies lies in their ability to establish a business system around IP creation, channel development, marketing conversion, and community ecology. The industry's competitive barriers are mainly reflected in four areas: 1) IP creation, which involves identifying potential IPs by expanding candidate resources, phased incubation, and market validation, and achieving long-term operations and large-scale delivery through series iteration, category expansion, and flexible supply chains; 2) channel development, which involves using lightweight asset channels to validate demand, acquiring end-user data through direct sales networks, and strengthening brand expression and sales conversion through experiential stores; 3) marketing conversion, which involves establishing recognition through differentiated role expressions, leveraging digital platforms to capture traffic, and enhancing repurchase and sales at key points through random, hidden, and limited mechanisms; 4) community ecology, which involves solidifying user relationships through player activities and membership systems, supporting new product communications and cross-IP traffic reuse. What is the growth path for trendy toy companies? Globalization and group formation will become the main growth direction for the industry in the next stage. Taking POP MART as an example, 1) Globalization: POP MART enhances its overseas expansion capabilities through organizational and infrastructural upgrades, collaborates with local artists to strengthen cultural identity, and optimizes store layouts and consumer engagement strategies to increase market penetration; its overseas business already has a foundation for rapid growth, with significant room for improvement in channel density and consumer coverage. 2) Group formation: POP MART continues to expand new formats around core IPs, with POPLAND enriching IP imagery through immersive experiences, POPBAKERY extending IP into daily consumption scenarios, and POPOP enhancing brand tonality and offline exposure through accessory businesses; these new formats contribute incremental revenue while reinforcing IP influence and user stickiness, forming synergy with its main trendy toy retail business. Related Companies Trendy toy companies have formed differentiated operating paths: 1) POP MART focuses on artist IP and full-chain operations, upgrading from a trendy toy retailer to a global IP operation platform; 2) BLOKS leverages licensed IP, standardized research and development, and large-scale supply chains to expand its audience, price range, and overseas markets with cost-effective products; 3) Card Game builds a collectible competition ecology through card rarity design, rapid development, distribution networks, and event activities. Investment Recommendations: Recommend BLoks (00325), a leading brand in building block toys, as its cost-effective products, user expansion, and overseas replication are expected to create additional growth. Risk Warning: Risks of IP life cycles and iterations not meeting expectations; risks of overseas market expansion not meeting expectations; risks of diversification and business expansion not achieving expected profitability.