ZheShang Securities: China is at the starting point of the era of spiritual consumption, with diverse core consumption motivations for trendy products

According to the Zheshang Securities research report, the Chinese pan-entertainment industry is expected to reach a nearly 2 trillion market in 2024, with a CAGR of nearly 14% over the past five years, among which the 潮玩 (trendy toys) market is nearly 90 billion. The ceiling for 潮玩 operations is the creation of IP, which can open up a larger market through licensing and adaptation. The IP licensing market size exceeds 150 billion yuan, and the IP adaptation market size is nearly 600 billion yuan. On the demand side, comparing with the starting point of the creative cultural industries in Japan and the United States, China's per capita GDP has exceeded 10,000 USD; currently, there are 500 million pan-2D users in China, with Generation Z becoming the main consumer force, and healing/appearance/IP/social interaction are the core consumption motivations for 潮玩 products.

Zheshang Securities' main viewpoints are as follows:

What is the current development status of the Chinese 潮玩 industry?

The Chinese 潮玩 industry has a large market, high prosperity, and greater extension space. The Chinese pan-entertainment industry is expected to reach nearly 2 trillion in 2024, with a CAGR of nearly 14% over the past five years, among which the 潮玩 market is nearly 90 billion. The ceiling for 潮玩 operations is the creation of IP, which can open up a larger market through licensing and adaptation. The IP licensing market size exceeds 150 billion yuan, and the IP adaptation market size is nearly 600 billion yuan.

China is at the starting point of the spiritual consumption era, with an accelerating trend in recent years

1. Demand side: Comparing with the starting point of the creative cultural industries in Japan and the United States, China's per capita GDP has exceeded 10,000 USD; currently, there are 500 million pan-2D users in China, with Generation Z becoming the main consumer force, and healing/appearance/IP/social interaction are the core consumption motivations for 潮玩 products. 2) Supply side: High-quality Chinese games/animations/novels represented by "Black Myth: Wukong" are emerging, and domestic IP is rising; high-quality 潮玩 product companies represented by POP MART/Card Game/Bluco are emerging, improving the supply of quality products; Guzi Store has begun a nationwide accelerated store opening cycle. 3) 潮玩 going overseas is the core of the next stage. The Kidult craze is rising in Europe and America, and as the economic level rises in Southeast Asia, the demand for spiritual consumption is stimulated, giving Chinese 潮玩 an advantage in products and supply chains.

潮玩 category analysis

Which categories are better? 1) Market size: Building blocks > figurines > cards > plush toys, influenced by the target audience and average price differences of different categories; 2) Market growth rate: Cards > figurines > building blocks > plush toys, related to the maturity of different categories' development in China; 3) Competitive landscape: Building blocks > cards > figurines > plush toys > badges and standees, determined by differences in business models and barriers.

What are the differences in business models among different categories? The 潮玩 business model can be summarized into two points: IP and operations, forming a balance scale with different categories emphasizing different aspects. The smaller the differentiated space that operations can create (such as product craftsmanship and gameplay), the greater the reliance on IP. Typical examples are badges/standees, where exclusive ownership of IP can construct absolute barriers. If reliance on third-party IP is needed, scale or secondary creation operational capability is key to obtaining top IP resources. For categories that place more emphasis on operations, such as building blocks and cards, due to the uniqueness of gameplay and strong interactivity, operational barriers are higher, and the landscape is easier to concentrate.

Analysis of 潮玩 companies' competitiveness Reviewing global 潮玩 companies, there are four major tiers: 1) The first tier is Disney, which builds the Disney IP universe and lays out a full ecological operation for IP; 2) The second tier includes LEGO and Bandai Namco, with LEGO holding an advantage in the building block category and having strong product operation and manufacturing barriers; Bandai Namco is a symbiotic entity in the Japanese anime industry, possessing a comprehensive operation map for IP across all categories; 3) The third tier consists of Hasbro and Mattel, both of which own top global toy IPs and have the ability to content-ify toy IPs, holding multiple high-value global toy brands; 4) The fourth tier includes differentiated product companies, such as Pokémon, FUNKO, and POP MART.

The formation of these four tiers is driven by the competitive differences among 潮玩 companies. In summary, the competitiveness of global 潮玩 companies consists of three parts: IP, category, and operation. IP and category determine the company's ceiling, while operation determines the company's floor. POP MART has the capability to enter the third tier.

Investment Recommendations

For IP copyright holders with high barriers, scarce resources, and broad extension space, it is advisable to prefer companies with proprietary IP/systematic IP operation capabilities and those occupying advantageous categories. Recommended are POP MART (09992), Miniso (09896), Morning Glory (603899.SH), and pay attention to Blokus (00325), Card Game (unlisted), Guangbo (002103.SZ), Yaoji Technology (002605.SZ), Huali Technology (301011.SZ), and Aofei Entertainment (002292.SZ), among others.

Risk Warning

Industry demand may fall short of expectations; industry competition may intensify; overseas expansion may not meet expectations, etc