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M Stanley: Mkt Over Critical on POP MART as Stock Price Still Underestimated by 20% even under Worst Case
Recommend 7 Positive 17 Negative 13 |
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POP MART (09992.HK) opened 0.87% higher this morning (31st) but subsequently turned south, diving nearly 5% to bottom at HKD141.3. It last traded at HKD145.7, down 2.02%, with a trading volume of 23.5795 million shares and a turnover of HKD3.428 billion. Pop Mart’s stock plummeted by more than 20% amid earnings announcement and has continued to decline despite share buybacks, marking its fifth consecutive day of losses. From its February peak, the stock has tumbled by more than 40%. With Pop Mart’s stock price having collapsed from its peak, the market has already priced in the worst-case scenario. Dustin Wei, an analyst covering the Asian consumption sector at Morgan Stanley, noted that the severity of three issues - rising inventory, pressure on overseas margins, and controversies surrounding new businesses -may be overestimated: 40-45% of overseas SG&A expenses are variable costs tied to sales volume, so losses will not escalate indefinitely; there is no pressure from product expiration or seasonal clearance; the truly noteworthy aspects of the new business are the theme park and the animated short film set to premiere this year. In his latest report, he directly pointed out that the market’s valuation of Pop Mart is based on the assumption that the overseas business has already failed in markets where it is just beginning to gain traction. He tested this logic using a sum-of-the-parts (SoTP) valuation - and deliberately adopted assumptions even more pessimistic than the market’s - concluding that the stock is worth approximately HKD180 per share, implying an upside potential of about 20% relative to the current share price. AASTOCKS Financial News Website: www.aastocks.com |
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