Report Date: 2026-11-01 | Rating: Prudently Bullish | Target Price: HKD 66–84 | Current Price: HKD 57.20 (closing price on 2026-10-30) | Margin of Safety: ~ +15% (base-case fair value floor of HKD 66 vs. current price) | Time Horizon: 12 months | Market Cap: HKD 14.09 billion (≈ RMB 11.95 billion, exchange rate 1 RMB = 1.1791 HKD, as of 2026-11-01)
Bloks is China's No.1 building-block character toy company (30.3% GMV share in 2023, Frost & Sullivan) and the world's No.3 IP toy company. At the current price of HKD 57.20, the stock trades at ~14.4x 2026E P/E and ~11.3x 2027E P/E; excluding net cash, the implied business value is only ~11.7x TTM adjusted earnings. Back-solving with a 15x exit multiple, the current price implies 2028 net profit attributable to shareholders of only ~RMB 710 million (roughly flat with the actual FY2025 figure of RMB 634 million) — the market is barely paying for growth. However, we also confirm that three overhangs are real: structural gross margin decline (52.6%→44.3%), overlapping renewal windows for the two major licensed IPs Ultraman/Transformers (2027/2028), and controlling-shareholder sell-downs. This is therefore a "verification-driven" investment: growth and cash conversion are real and the odds favor downside protection, but re-rating requires three milestones to be delivered one by one — a 2H26 gross margin recovery (to be verified in the FY2027-03 annual report), IP renewals landing, and buyback resumption. Base-case fair value is HKD 66–84 (midpoint 75, +31% vs. current price), bear case HKD 38–48 (-25%), with a probability-weighted expectation of ~HKD 75.5 (+32%).
Key evidence
In 2026H1, revenue was RMB 1.776 billion (+32.7%) and adjusted net profit ~RMB 400 million (+25.1%, estimated); OCF/net profit was 1.51, above 1.3 for four consecutive periods — a cash conversion profile of excellence under a negative working-capital model of distributors paying cash up front plus supplier payables. But two discounts must be applied: ① Interest income and government grants in adjusted net profit totaled ~RMB 67 million (16.7%); excluding these, core net profit is ~RMB 320 million with a core net margin of ~18.0% (core growth ~+30%, actually higher than headline); ② Of the RMB 3.133 billion in net cash, ~RMB 1.05 billion is committed IPO proceeds (R&D/molds/capacity/IP, to be spent by 2027-28), so freely disposable net cash is ~HKD 10 per share rather than HKD 15.
Key evidence
On the surface, single-IP dependence has improved markedly: Ultraman's revenue share fell from 63.5% in FY2023 to 21.5% in 2026H1. But after decomposition, the quality is questionable: Ultraman revenue in absolute terms fell from RMB 1.096 billion in FY2024 to RMB 815 million in FY2025 (-26%), annualizing to ~RMB 760 million in 1H26 — the numerator itself is shrinking (upstream Tsuburaya Fields' FY2026 China licensing revenue fell -51.6% YoY, its first decline in a decade). The 77.6% denominator includes 10.4 percentage points from the new building-block vehicles; restoring the building-block character category scope, the top six still account for ~86.6%. More critically, Ultraman (China license expiring 2027) plus Transformers (expiring 2028) together contributed 56.4% of revenue in 1H26, with overlapping renewal windows — and the FY2025 annual report's "successfully renewed" list (Kamen Rider, Marvel, Naruto, Pokémon, etc.) does not include these two IPs. Licensing agreements run 1–3 years, are non-automatic and non-exclusive — renewal progress is the single largest valuation variable over the next 12 months.
Key evidence
In 2026H1, overseas revenue was RMB 366 million (+228.5%, 20.6% of total, unverified; the Americas grew ~4.5x), and the new building-block vehicle line contributed 10.4% of revenue just seven months after launch — the incremental engine is indeed shifting. But as can be computed from the announcements: the domestic building-block character core business grew only +1.9% YoY in 1H26 (character-category revenue of RMB 1.585 billion less overseas character-category RMB 348 million = RMB 1.238 billion vs. RMB 1.214 billion in the prior-year period); growth was almost entirely driven by building-block vehicles and overseas distribution. Overseas sales follow a forward-warehouse distribution model; goods in transit rose +155% vs. the prior year-end, and the company does not disclose overseas distributor inventory or terminal sell-through rates, so a one-off distribution component cannot be ruled out. Against the backdrop of peer Pop Mart's 1H26 Americas revenue falling -16.5%, Bloks' +349% in the Americas needs sell-through data to corroborate. The re-rating of a "globalized IP toy platform" must wait for 2H26 overseas sequential revenue and annual report segment data to confirm.
Key evidence
Gross margin: 52.6% (FY2024) → 46.8% (FY2025) → 44.3% (2026H1); character-category ASP fell from RMB 21.1 (FY2023) to RMB 11.3. The structural change in texture is real: the RMB 9.9 price band is 47.6% of volume, and mold depreciation +64.3% (consistently double the revenue growth rate). But the other side must be presented objectively: the FY2025 gross margin decline was -5.8pct, and even if the 2H26 recovery guidance (46–47%) is delivered, the full year would be ~45.5%, only -1.3pct YoY — the deterioration slope is converging, and the decline highly overlaps with two identifiable transitional factors: the ramp-up of new building-block vehicle molds and customer acquisition through the affordable band. Whether the RMB 9.9 band is a "funnel entry" (the company claims new-user repurchase rates above 70%) or a "downward shift in the brand's price anchor," current disclosures are insufficient to adjudicate — this is a shared uncertainty for both bulls and bears.
Key evidence
At HKD 57.20, the stock trades at ~14.4x 2026E P/E and ~11.3x 2027E P/E; after deducting net cash of RMB 3.133 billion from the RMB 11.95 billion market cap, the business value of RMB 8.82 billion is only 11.7x TTM adjusted net profit of RMB 755 million. Back-solving: at a 15x exit multiple and 10% discounting over two years, the current price implies 2028E net profit attributable to shareholders of only ~RMB 710 million (≈ three years of zero growth); at a 12x exit, ~RMB 890 million. The market is effectively paying an option discount for the binary tail of "failure to renew the two major licensed IPs." Zero-growth equity value (EPV, including cash interest contribution) is ~HKD 31 per share, and the growth option is ~46% of the current price — the market is not pricing for zero growth, but is paying a very low price for growth. Base case (2027E net profit attributable to shareholders of RMB 1.02–1.13 billion × 13–16x) fair value is HKD 66–84. Constraints that must be declared: all sell-side earnings anchors and target prices (HKD 72.4–100) are media-sourced and original reports were not obtained, and Guosen's single 27% cut in September shows the anchors are still moving — the magnitude of this judgment is constrained accordingly.
Key evidence
The controlling shareholder's 10-22 block sale of 3.849 million shares raised ~HKD 251 million, and the stock fell -21% that day; First Prosperity also sold down in September. Zhu Weisong, still above the 30% control threshold, has ~22 percentage points of theoretical room for further sell-downs (a ceiling, not a path), compounded by the stock trading below the IPO price of HKD 60.35 — sentiment is fragile. But two offsets are equally real: within 6 trading days of the sell-down, the stock rebounded ~+10.9% from its low, with the impact of the first 1.56% tranche digested faster than expected; the existing buyback mandate of 24.79 million shares (10% of issued shares) is barely used, the 2026 average buyback price of HKD 53.29 is below the current price, and the interim dividend has been paid (~HKD 80 million in total, estimated; dividend yield ~0.6%). The net effect of overhang versus offset must be verified on a rolling basis through monthly returns and HKEX disclosure data.
| Metric (RMB) | FY2023 | FY2024 | FY2025 | 2026H1 |
|---|---|---|---|---|
| Revenue (RMB 100M) | 8.77 | 22.41 | 29.13 | 17.76 |
| Revenue YoY | — | +155.6% | +30.0% | +32.7% |
| Net profit attributable to shareholders (RMB 100M) | -2.06 | -4.01 | 6.34 | 3.87 |
| Adjusted net profit (Non-IFRS, RMB 100M) | 0.73 | 5.85 | 6.75 | 4.0 (estimated) |
| Gross margin | 47.3% | 52.6% | 46.8% | 44.3% |
| Net margin (attributable) | -23.5% | -17.9% | 21.7% | 21.8% |
| Operating cash flow (RMB 100M) | 2.85 | 7.62 | 8.97 | 5.85 |
| Free cash flow (RMB 100M, OCF − fixed assets − intangibles) | ≈2.61* | 6.42 | 5.49 | 3.96 |
| Cash + time deposits (RMB 100M, period-end) | — | — | 28.40 | 31.33 |
| Interest-bearing liabilities (RMB 100M, lease liabilities only, no bank borrowings) | — | — | 0.34 | 0.20 |
| Liabilities/assets ratio | 199.7% (preferred shares classified as liabilities) | ~109% | — | 29.3% |
*FY2023 deducts fixed assets only. The high FY2023/FY2024 liability ratios were due to accounting presentation of convertible redeemable preferred shares, which converted to equity after the IPO.
Drivers of metric changes (summary for YoY ≥ ±20%): FY2024 revenue +155.6% was mainly driven by the surge in the Ultraman series (48.9% of revenue); the FY2024 attributable loss of RMB 401 million stemmed from one-off items totaling RMB 986 million (fair value changes of preferred shares RMB 542 million + SBC RMB 407 million + listing expenses RMB 33 million), while on an adjusted basis it was actually a profit of RMB 585 million; FY2025 revenue +30% was driven by volume +85.6% (ASP fell to RMB 11.4; RMB 9.9 affordable band revenue RMB 541 million); FY2025 gross margin -5.8pct was due to "mold depreciation increasing 120.6%, with capex on high-precision multi-cavity molds expensed in the current period"; FY2025 trade receivables +141.3% was due to "increased sales volume through major customers and online channels" (90.6% of aging within 3 months; fell back to RMB 254 million in 1H26); FY2025 overseas revenue +396.6%; FY2025 administrative expenses -78.9% was due to the RMB 359 million decrease from 2024's one-off equity incentives.
2026H1 revenue RMB 1.776 billion (+32.7%), net profit attributable to shareholders RMB 387 million (+30.5%), adjusted net profit ~RMB 400 million (+25.1%, estimated), OCF RMB 585 million (+45.3%). By structure: overseas RMB 366 million (+228.5%, exceeding 20% of revenue for the first time, unverified), building-block vehicles RMB 186 million (new product), Transformers RMB 619 million (+59.2%) becoming the largest IP, Naruto +132.9%; domestic character-category core business grew only +1.9%. Gross margin 44.3% (-4.1pct) was the lowest since 2023: mold depreciation +64.3%, the RMB 9.9 band at 47.6% of volume, and initially low building-block vehicle margins. Inventory RMB 432 million (+25% vs. start of year), 73-day turnover, mold impairment RMB 7.07 million (prior-year period RMB 810 thousand). Management guided 2H26 gross margin recovery and unchanged full-year revenue growth of +30% (2H26 implies +27.7%, below the actual 1H26 pace — highly achievable); the market reacted positively, with the stock opening up over 6% the following day, and Citi subsequently raised its target price to HKD 82. Relative to the sell side: this report's 2026E net profit attributable to shareholders of RMB 830–870 million is in the same range as Guosen's post-cut RMB 832 million and slightly below Huatai's adjusted RMB 886 million — the market has not yet priced this interim report as a "beat."
Model snapshot: An asset-light IP toy company — in-house design + outsourced manufacturing + distribution-led (offline distribution ~90% of revenue), with own factories planned as IPO-funded projects (in production before 2027-06); all revenue is point-in-time sales with no recurring revenue, and costs include ongoing IP licensing amortization. Weak pricing power: an explicit "volume-for-price" strategy across the full price band (RMB 9.9–399).
Cash content of earnings: OCF/net profit FY2024 1.30 → FY2025 1.42 → 2026H1 1.51; FCF/net profit FY2025 0.87, 2026H1 1.02 — a high proportion of book profits converts into freely disposable cash, a rare industry structure of "negative working capital + prepayments." Note, however, that earnings contain non-operating components: 1H26 interest income RMB 34 million + government grants RMB 33 million, together 15.5% of pre-tax profit; excluding these, the core net margin is ~18.0%. The adjusted measure itself is relatively clean (1H26 added back only RMB 14 million of SBC, 3.4%; FY2024's large add-back was one-off IPO-related grants, a historical item).
Return on capital: FY2025 ROIC estimated at ~19.6% (denominator includes idle IPO proceeds; higher if excluded) — above the 15% true-moat signal line; the capital return quality of molds + IP matrix + lower-tier channels is solid.
Capex quality: CapEx/depreciation FY2024 1.38 → FY2025 1.75 → 1H26 1.14, mainly additions of molds and licensed IP (FY2025 licensed IP additions RMB 113 million, amortization RMB 80 million) — growth investment supporting new SKUs; the company does not break out maintenance capex, so the level of maintenance spending cannot be determined. The risk point is that mold depreciation flows directly into cost of sales, compressing margins in years of new-product ramp-up.
Red flags: ① Trending declines in ASP and gross margin (52.6%→44.3%); ② Receivables/revenue ratio rising over three years, 4.4%→5.0%→9.3% (absolute level still low, aging healthy); ③ Licensed IP is a persistent cost item, and matrix expansion will push amortization higher.
Consistency between words and actions: Pragmatic. Three promise-vs-delivery comparisons: ① FY2024 annual report pledged overseas expansion → FY2025 overseas revenue +396.6%, licensed IP count 50→73; ② FY2025 pledged deeper North America/Europe channels → Americas +349% in 1H26; ③ IPO net proceeds of HK$1.79 billion deployed by line item, 30.6% cumulatively used as of end-June 2026, on schedule per the 2027-28 timeline. However, the company provides no quantitative earnings guidance and all outlook statements are qualitative, making them hard to falsify.
Shareholder friendliness: Neutral — direction improving but offset by insider selling. No dividends FY2023-25 → first interim dividend declared in 1H2026, totaling approximately HK$80 million (estimated, approximately HK$0.32 per share on 2.46 billion shares), a payout ratio of about 19%; buybacks of 704,100 shares in 2025 (HK$65.35 million, average price 92.82) and 1,092,600 shares in 1H2026 (HK$58.23 million, average price 53.29) — the buyback average price declined in line with the share price, timing-wise neutral. Offsetting factors: the controlling shareholder sold HK$251 million of shares on October 22, and the company itself stated the sale was "for the shareholder's own funding needs and unrelated to the Group's business."
Risk signals: ① Controlling shareholder selling at a high point (HK$65.28 vs the 2025 buyback average of HK$92.82) — mixed signals; ② Chairman also serving as CEO (deviation from Corporate Governance Code C.2.1 on separation of roles); ③ -5% on 2026-09-10, the day Guosen downgraded, and -21% on 2026-10-22, the day of the shareholder sale, showing extremely high market sensitivity to management/shareholder actions.
| Segment | FY2025 Revenue Share | Gross Margin | YoY | 1H2026 Share | Business Logic |
|---|---|---|---|---|---|
| Building-block character toys | 97.6% | 47.2% | +29.1% | 89.3% (estimated) | Licensed-IP block figures; absolute mainstay of gross profit and profit |
| Building-block vehicles & sets | 2.4% | 31.4% | +77.0% | 10.4% | New product line launched 2025-11; second category under validation |
| Domestic | 89.1% | Not disclosed by region | +19.2% (1H26 +14.9%) | 79.4% | Core base; growth slowing to below 15% |
| Overseas | 10.9% | Not disclosed by region | +396.6% (1H26 +228.5%) | 20.6% | Second growth curve; US/Indonesia largest |
Profit mainstay: Building-block characters contribute ~97% of gross profit (high on both revenue share and gross margin); the valuation is fundamentally still a single-category "block figure" business. Gross margin structure gap of 15.8pp (characters 47.2% vs vehicles 31.4%): vehicles are in ramp-up, with concentrated mold amortization and low unit prices — block-vehicle volume is an increment to revenue but a near-term dilution to margins, which is precisely the key variable behind the 2H26 gross margin recovery guidance.
Accounting red flags (all low): ① Receivables +141.3% vs revenue +30% (FY2025); the company attributes this to volume growth from key customers and online channels; 90.6% of balances are under 90 days old and receivables fell in 1H26 — risk is manageable; ② FY2024 GAAP loss of RMB401 million vs adjusted profit of RMB585 million (a gap of RMB986 million in one-off items), due to preferred share fair value + SBC + listing expenses — a structural IPO item rather than earnings management, but SBC is inherently a recurring compensation cost and the add-back treatment should be scrutinized year by year; ③ Effective tax rate of only 8.6%, relying on the 15% high-and-new-tech enterprise preference (reviewed every three years) and deferred tax assets (5.8% of net assets) — a rising tax rate is a hidden drag on medium-term earnings.
Cross-period consistency: ① Gross margin jumped twice, 47.3%→52.6%→46.8%→44.3%, with management explanations coherent throughout (economies of scale → mold depreciation + lower price bands); ② Character ASP nearly halved, RMB21.1→16.3→11.4→11.3, with the company proactively disclosing its volume-over-price strategy — consistent narrative; ③ Ultraman share 63.5%→48.9%→28.0%→21.5%, consistent with the IP portfolio expansion narrative; ④ Receivables/revenue ratio trending up over three years (4.4%→9.3%) — the company has not explained this trend — the only anomaly not covered by management's narrative.
Current market data (close of 2026-10-30): Share price HK$57.20, market cap HK$14.09 billion; PE(TTM, adjusted) 15.8x, PB ~3.9x (net assets per share ~HK$14.8), 2026E PE 14.4x, 2027E 11.3x, EV/Sales(TTM) ~2.6x, PEG ~0.47. Listed for only about 22 months; the historical percentile window is extremely short (PE at ~9th percentile over the past year) — percentiles are for reference only. Average daily turnover ~HK$50 million (0.35% of market cap); liquidity is moderate-to-low but does not constitute a mandatory discount factor.
Peer comparison:
| Company | PE(TTM) | Revenue growth (latest period) | Gross margin | ROE | Notes |
|---|---|---|---|---|---|
| Pop Mart 9992.HK | 11.8 | 1H2026 +23.8% | 69.7% | 1H26 22.2% | Own IP + DTC; valuation compressed after growth downshift |
| MINISO 9896.HK | 16.1 | 1H2026 +22.4% | ~45% | 1H26 9.2% | Channel-based; TOP TOY building sets +87.9% |
| Bandai Namco 7832.T | 28.5 | FY2026/3 +8.6% | — | ~15% | Global No.1 in block characters; both licensor and competitor |
| Bloks 0325.HK | 15.8 (adjusted) | 1H2026 +32.7% | 44.3% | ~25% annualized | Licensed IP + distribution; highest growth but methodology-dependent |
Market-implied expectations: Market cap RMB11.95 billion − net cash RMB3.133 billion = business value RMB8.82 billion, only 11.7x TTM adjusted net profit. Working backward: 15x exit + 10% discount over two years → implied 2028E net profit attributable of ~RMB710 million (≈ flat vs FY2025, i.e., the market is pricing three years of zero growth); at a 12x exit → ~RMB890 million. Reality: 1H26 already delivered +32.7% revenue growth (including block-vehicle and overseas increments), and the sell-side consensus 2026-28 CAGR is ~25%. The current price requires the company to "stall," while reality shows genuine growth of unverified quality — the core of the disagreement is not whether it can grow, but how many turns the IP renewal risk is worth.
Three-tier value (EPV): Asset value (book net assets per share) ~HK$14.8 (net cash HK$15.0, operating net assets ~-HK$0.2); zero-growth equity value EPV ~HK$31/share (normalized FCFE ~RMB680 million, including cash interest contribution, discount rate 10.5%, range HK$25-38); current price HK$57.2 − 31 ≈ HK$26 as growth option (~46% of current price) — the market is not "pricing only for zero growth," but is paying a very low price for growth. Note: freely disposable net cash is ~HK$10/share (~RMB1.05 billion of the RMB3.133 billion is earmarked IPO proceeds locked until 2027-28); in extreme scenarios not all net cash is distributable.
Three scenarios and odds (anchor: 2026-10-30 close of HK$57.20):
| Scenario | Probability | Fair range | vs current | Key assumptions |
|---|---|---|---|---|
| Bear | 0.22 | HK$38-48 | -34%~-16% | 2H26 gross margin fails to recover, Ultraman renewal fails or royalty rate spikes sharply, domestic share loss → 2027E attributable profit falls to RMB600-700 million, 8-11x |
| Base | 0.53 | HK$66-84 | +15%~+47% | 2H26 gross margin recovery materializes, 2026 revenue +30%, 2027 growth 20-25% → 2027E attributable profit RMB1.02-1.13 billion × 13-16x |
| Bull | 0.25 | HK$95-115 | +66%~+101% | Overseas +80-100% in 2027, own IP and adult lines ramp up, gross margin back to 48% → 2027E RMB1.2-1.3 billion × 17-19x |
Base-case exit multiple anchoring: 13-16x taken between MINISO's TTM 16.1x, Pop Mart's post-downshift 11.8x, and Bandai's 28.5x (Bloks has the highest growth but licensed-IP model + small-cap liquidity + renewal window discount); the company's current 15.8x is not used as the anchor. Bear case constructed independently: 2027E attributable profit of RMB600-700 million × 8-11x (benchmarked against Pop Mart's post-compression level); Goldman Sachs' most pessimistic external anchor, the "Neutral" target price of HK$72.4, assumes normal operations and is not a stress scenario, so it is not used as the bear-case boundary. Probability-weighted expectation ~HK$75.5 (+32%).
House earnings forecasts vs management guidance and sell-side expectations:
| Basis | 2026E Revenue | 2026E Net profit attributable | 2027E Revenue | 2027E Net profit attributable |
|---|---|---|---|---|
| This report | RMB3.74-3.82 billion | RMB830-870 million | RMB4.54-4.70 billion | RMB1.02-1.13 billion |
| Management guidance | FY revenue +30% (≈RMB3.79 billion) | Not given | Not given | Not given |
| Guosen (post 2026-09 downgrade) | — | RMB832 million | — | RMB1.059 billion |
| Huatai (2026-08, adjusted) | — | RMB886 million | — | RMB1.166 billion |
Conclusion: Undervalued, target price range HK$66-84 (base scenario), margin of safety ~+15% (vs base-case floor). Quality and price assessed separately: quality is strong (cash conversion, ROIC 19.6%) but not flawless (licensing dependence, declining gross margin); price already discounts too much pessimism.
Industry definition and size: Bloks' niche is "IP building-block character toys" (block figures / buildable movable characters), distinct from traditional scene-based building blocks (LEGO), blind-box figures (Pop Mart), and trading cards (Kayou). China's building-block character toy GMV was ~RMB5.8 billion in 2023, a 2019-2023 CAGR of 49.6% (RMB1.2 billion→5.8 billion, Frost & Sullivan, as cited in the prospectus); F&S forecasts a 2023-2028 CAGR of 41.3%, reaching ~RMB32.5 billion by 2028; global building-block characters were ~RMB27.8 billion in 2023 (CAGR 20.5%), with a 2023-2028E CAGR of ~29%, of which overseas (ex-China) RMB22.1 billion→67.1 billion (CAGR 24.9%). Upstream aggregate: global toys RMB773.1 billion in 2023, ~RMB993.7 billion by 2028E (CAGR 5.1%); China's broad toy/collectible market ~RMB87.97 billion in 2025, +21% (Guangdong Toy Association, 2026-03). Note: the 41.3% forecast is from the prospectus (mid-2024); the toy/collectible segment has already shown a growth downshift in 2026 (Pop Mart's 1H2026 growth plunged to +23.8%, overseas turned negative), so the actual slope is likely below that forecast.
Structural demand inflection points (quantified chain): ① Category penetration — building-block characters' share of China's character toys 14.3% in 2023 → 35.6% by 2028E (~2.5x), only 5.5% of the overall toy market — high ceiling; ② Geographic expansion — overseas building-block characters 2023-2028E CAGR 24.9%, Bloks' overseas revenue share 2.9% (2024) → 10.9% (2025) → 20.6% (1H2026); ③ Customer extension — 16+ adult revenue share 11.4% (FY2024) → 16.7% (FY2025) → 25.0% (1H2026). All three rings are backed by hard numbers, but the penetration slope peaked in 2025-2026; from 2027, natural slowdown on a high base.
Industry chain and value distribution: Upstream IP licensors (Tsuburaya/Ultraman, Hasbro/Transformers, Bandai/Kamen Rider, Disney/Marvel) — licensing fees on the order of 5-8% of revenue (Bloks ~8.3% in 2023), licensors have strong bargaining power (non-exclusive, 1-3 year terms, no automatic renewal); midstream design and manufacturing (where the company sits) — the main value-accumulation link, with scale effects + mold standardization (0.004mm precision, 500+ patents, 6-7 month new-product cycle vs industry 10-12 months) as the cost moat; downstream distribution channels (500+ distributors, ~150,000 retail outlets, covering over 80% of tier-3 and lower cities) — channels capture 20-30pp of the end-price spread, the main reason Bloks' gross margin (44-53%) is below Pop Mart's DTC (~70%); relatively strong bargaining power over downstream (rebates only 1-2%).
Supply-demand and competitive landscape: Global building-block character CR3 = 81.7% (2023, F&S): Bandai 39.5%, LEGO 35.9%, Bloks 6.3%; in China's building-block character market Bloks ranked No.1 at 30.3% (as of 2023; latest share not updated — 2025 domestic revenue +19.2%, 1H26 +14.9%, below forecast industry growth, share may be under marginal pressure, to be verified). Competition is closing in from three sides: Bandai is accelerating store openings in China (42+ stores) and launched RMB9.9 "Chaogou Qudong" products directly attacking Bloks' core price band; MINISO's TOP TOY building category grew +87.9% in the first three quarters of 2025; trading cards (Kayou: 2024 revenue RMB10.06 billion, 71.1% share) siphon the same customers' discretionary spending. Substitution threat is moderate-to-high; entry barriers (IP portfolio + molds + channel penetration) provide defense against white-label players.
Cycle and regulation: The industry is in "mid-growth phase + downshifting from a cyclical high": IP collectibles entered a post-boom adjustment period in 2026 ("guzi economy" cooling, secondary-market premiums receding), but building-block characters are more stable than blind-box figures. Leading indicators: head IP life cycles (~2-3 years), channel inventory/inventory turnover (Pop Mart's 123→201 days is a warning), first-quarter sell-through of new SKUs, secondary-market premiums. Regulation is neutral to mildly negative: blind-box guidelines (2023-06) restrict blind-box sales to young children (the company's 6-16 age group is 74.5% of revenue); enforcement is tightening but favors established compliant players; Kayou's stalled IPO reflects regulatory caution toward IP toys for young children.
Company industry positioning: Niche leader (No.1 in China, No.3 globally) rather than a global champion; share trend "stalled domestically, climbing overseas." Four-layer moat: IP portfolio + commercialization capability (75 licensed IPs + 2 own IPs), value-for-money across all price bands (RMB9.9-399), penetration channel network, and process/scale cost advantages. The core vulnerability shares the same source as the moat: upstream non-exclusive, term-limited licenses; own IP (Heroes of Infinity, 3.4% of 1H26 revenue) not yet carrying the load.
For IP toy companies, the two definitional dimensions most easily missed by generic frameworks are licensing terms and SKU cadence:
1) Licensing terms and expiration calendar: Licenses are non-exclusive, with initial terms of 1-3 years and no automatic renewal (priority renewal on equal terms, negotiations starting 3-6 months before expiry); fees are "the higher of minimum guarantee and sales-based royalty"; sub-licensing generally prohibited; a 3-6 month sell-off period after termination. Expiration calendar: Ultraman China 2027 (overseas license expired in 2025 with certain territories not renewed), Transformers global (50+ countries) 2028; Kamen Rider, Marvel, Naruto, Pokémon, etc., were renewed in FY2025. Licensed IPs are capitalized as intangible assets and amortized over 1-3 years into cost of sales: FY2025 additions of RMB113 million / amortization of RMB80 million, 1H26 additions of RMB64 million — IP portfolio expansion shows up in the financials as persistently rising "quasi-rent" costs, and rising renewal royalty rates will directly compress gross margin.
2) SKU cadence and customer structure: SKUs on sale: 682 (end-FY2024) → 1,447 (end-FY2025, 913 launched during the year) → 1,851 (end-1H26, 426 launched in half a year); 16+ adult SKUs on sale: 393, revenue share 11.4%→25.0%. Repeat purchases for IP toys are driven by three factors: "IP heat × new-product frequency × price-point threshold." Bloks' RMB9.9 band (47.6% of unit volume) is essentially a customer-acquisition funnel that pushes the price threshold to the extreme — but retention data on migration to higher price bands is undisclosed, which is the micro-level root of the valuation disagreement.
3) Channel structure: Offline distribution 90.5% (FY2025), online 8.7%→10.2% (1H26, including Amazon/TikTok/Shopee). Under the distribution model, end-market sell-through data is opaque, and channel inventory is the industry's biggest information blind spot during this downshift (company inventory of RMB432 million and 73-day turnover remain healthy, but distributor inventory is not disclosed).
Overall verdict: Cautiously bullish, confidence 0.58, time horizon 12 months. Bloks' quality is strong (cash conversion, ROIC, channel barriers) and the current price already discounts too much pessimism (business value 11.7x TTM, implying near-zero growth over three years); base-case fair value is HK$66-84 with a ~+15% margin of safety; but the triple pressure of gross-margin falsification risk, the twin IP renewal windows, and share supply means direction realization requires catalysts — hence cautious rather than resolute. Strategically, HK$57.20 offers value for staged position building; add signals are the resumption of buybacks and empirical evidence of sequential gross-margin recovery.
Risks and monitoring (presented in writing, mapped to monitoring triggers):
Key uncertainty statement: The sell-side earnings forecasts and target prices cited in this report (Goldman Sachs 72.4 / Citi 82 / CICC 90 / Huatai 100 HKD, etc.) are all media reports; the original research reports were not obtained; the -51.6% decline in Tsuburaya's China-region licensing revenue is a media citation of the Japanese party's annual report data. The 30.3% domestic building-block character share is an as-of-2023 figure. The above items have been treated per "the strongest available evidence"; company announcements and original disclosures take precedence going forward.
This report is based on public materials; the price anchor is the 2026-10-30 close of HK$57.20 (frozen), and all RMB-HKD conversions use 1:1.1791 (captured 2026-11-01).