Pop Mart International (9992 HK): Expect very tough 2H26 numbers despite business refinements

Pop Mart announced that its overall revenue in 3Q26 plunged 45-50% YoY, as mainland China revenue declined by 25-30% YoY, while Asia Pacific/America/Europe also dropped 65-70%/70-75%/50-55% YoY, respectively. While a very high base effect was in play as the Labubu craze is fading, we also view the numbers may miss investors' expectations since Pop Mart is also deliberately controlling its sell-through and channel inventory. We expect the headline numbers should start to gradually normalise in 4Q26 and 2027, but we expect market would also turn more conservative on its margins as it starts to adjust its pricing in US stores while continuing to ramp up overseas expansion. As such, we expect the market may remain wary before the Mar 2027 earnings release, but we believe there could be more opportunities for patient investors to accumulate a business that is still intact with exceptional ROE. We cut our FY26-28 EPS forecasts by 23-27% and now expect FY26 full year NP will decline 23% YoY.