I. Summary of Key Points in Plain Language
A year ago, Mingchuang Youpin was a hot commodity in the capital market: its semi-annual report showed a double increase in revenue and profits, and its trendy merchandise business grew at nearly twice the rate. The entire market was discussing when it would evolve from a small, affordable store into the next Bubble Mart, with its stock price rising by 10 times in just one year. However, less than a year later, the situation took a dramatic turn for the worse. On the day the latest semi-annual report was released, its stock price plummeted by over 12%, and its market value was cut in half to just HK$22.5 billion. Although its revenue continued to grow by around 20%, its core profitability had significantly slowed down. The reason was that its aggressive expansion efforts into overseas direct operations and investment in IPs had been too ambitious, and the resulting transition challenges far exceeded market expectations. The high growth potential that investors had once attributed to the company was completely eroded by market reactions.
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II. Five Dimensions of Analysis in Simplified Language
1. Don’t Be Misled by a 22% Revenue Increase: The Financial Report Shows More Problems Than It Appears
Many people are confused: If the revenue growth rate is similar to last year, why did the stock price crash? The key issue is that investors had expected its profits to increase alongside revenue. But upon closer inspection of the financial report, it became clear that there were significant issues:
- After deducting various non-recurring revenues, the company’s core business profits actually decreased by 1.7% year-on-year. The second quarter was even more alarming, with a reported loss of HK$290 million due to the decline in the stock price of the AI company MINIMAX (which is like buying a stock that appreciated first but then lost value). Even if this loss is completely ignored, the company’s core profits from selling products and opening stores still fell by 10.5% year-on-year.
- In other words, this wasn’t an unexpected setback; there were real problems with its core business. Investors had assumed it could maintain annual profit growth of over 20%, but when that expectation didn’t materialize, the stock price naturally plummeted.
2. The Truth Behind the Disappearing Profits: Two Major Expenses Are Eroding All the Company’s Revenue
Mingchuang Youpin’s profits weren’t stolen; they were simply spent on various expenses:
- Sales expenses soared by nearly 40% in half a year—on IP development, opening large stores, leasing space for these stores, advertising, paying artists, and hiring more sales staff. In total, these costs amounted to nearly HK$1 billion, meaning for every HK$100 in sales, the company had to spend an additional HK$2.7 on these expenses, significantly reducing its profits.
- The proportion of profitable businesses decreased, while the proportion of unprofitable ones increased. Domestic franchise operations, which didn’t require the company to invest in opening stores and offered higher profit margins, saw their revenue share drop by 6 percentage points. Conversely, the more expensive and unprofitable overseas direct operations saw their revenue share increase by 3 percentage points. This means that the company was focusing more on less profitable activities, dragging down its overall profit margin.
3. The Two Growth Drivers That Were Once Hyped Are Now Failing
The capital market’s high valuation of Mingchuang Youpin was based on two main ideas: expanding into thousands of stores globally and becoming an IP retailer on par with Bubble Mart. However, both of these strategies are facing problems:
- Overseas, while initial profits seemed promising, sales at existing stores have started to decline. The company is now being cautious about opening new stores, as most of its overseas operations are still in the trial and error phase and are losing money. The revenue from overseas operations now accounts for just over 10% of total profits.
- On the IP front, the company’s attempt to compete with Bubble Mart through its trendy merchandise brands (TOP TOY) failed miserably, resulting in a loss of over HK$70 million in the first half of the year—its first loss in three years. The so-called “multi-IP strategy” involved investing in dozens of artists in the hope of creating hit products, but most of the money was wasted due to high costs.
4. The Real Difference Between Mingchuang Youpin and Bubble Mart
Many people think that Mingchuang Youpin can catch up with Bubble Mart by signing more trendy designers and opening more IP stores. The real difference lies in their business models:
- Bubble Mart is a true IP powerhouse: it develops and manages its own IPs, such as MOLLY, and earns profits from selling related products, holding offline events, and collecting licensing fees, with a gross margin of nearly 70%. In contrast, Mingchuang Youpin is more like a distributor; it buys IP licenses and sells products, with a gross margin of only around 44%, which is nearly 30% lower than Bubble Mart’s. Even if its store sales were the same as Bubble Mart’s, Mingchuang Youpin would have to pay more in licensing fees and rent, leaving it with much less profit.
5. Has Mingchuang Youpin Been Undervalued Due to Misunderstandings?
Objectively, Mingchuang Youpin isn’t on the verge of collapse. Its chosen transformation path is not wrong: the traditional retail market is highly competitive, and consumers are willing to pay for IP-related products. Expanding overseas and opening large stores to enhance the brand is a recognized strategy in the industry.
The 10-fold increase in its stock price a year ago reflected expectations of its transformation into a global IP giant within three to five years. The current 60% drop in its market value reflects the bursting of these inflated expectations. The capital market now realizes that the transformation will be costly and time-consuming, so its valuation has been adjusted accordingly.
Whether Mingchuang Youpin can turn things around depends on two factors: whether its overseas direct operations can become profitable quickly and whether it can develop its own successful IPs to improve its profit margins. If it can achieve these goals, its current market value of over HK$20 billion could represent a buying opportunity. Otherwise, the market may continue to reduce its valuation as it struggles with these challenges.