Northeast Securities: The Rise of Domestic AI Toys, Combining Movement and Sound to Meet Explosive Demand Across All Age Groups

According to the information from Zhitong Finance APP, Northeast Securities released a research report stating that the global toy market shows signs of fatigue. The demand for traditional toys may gradually weaken in the medium to long term, forcing the industry to further develop towards intelligence and AI, promoting both volume and price increases in the industry, helping the sector to navigate through cycles. From a neutral perspective, the firm believes that the penetration rate of AI toys will increase at least as fast as that of trendy toys, with domestic penetration rates expected to reach 29%/41%/47% in 2026/2028/2030, and the domestic market is expected to approach 85 billion yuan by 2030. Related targets: IP + AI toy manufacturers: GOLDLOK HOLDINGS, Alpha Group, Shifeng Culture. Large model/interactivity module suppliers: Guanghetong.

The main points of Northeast Securities are as follows:

The pressure on the youth population structure leads to a decline in traditional toy demand, while AI advancements force industry upgrades

According to data from Frost & Sullivan, since the pandemic, the global toy market has experienced a brief recovery, but the overall market still shows signs of fatigue, with a growth rate of about 4% expected in the global toy market in 2024. However, mature markets are showing an overall downward trend. According to market monitoring data from global market consulting firm Circana on the toy markets of 12 countries including the United States, the United Kingdom, Germany, France, Italy, Spain, the Netherlands, Belgium, Canada, Australia, Brazil, and Mexico, toy sales are expected to decline by 0.6% year-on-year in 2024. In emerging markets, regions like Latin America have active toy consumption, but high inflation and currency devaluation have suppressed sales growth, with overall growth around 4%. Currently, the main consumer group for toys remains children under 14 years old. Due to the aging population and declining birth rates in mature developed markets, the demand for traditional toys may gradually weaken in the medium to long term, forcing the industry to further develop towards intelligence and AI, promoting both volume and price increases in the industry, helping the sector to navigate through cycles.

“Static” trendy IP was the main driver of past toys, while “dynamic” upgraded AI toys are expected to take over

In the past five years, trendy toys have risen, with Pop Mart leading the blind box economy. The domestic trendy toy market surpassed 60 billion yuan in 2023, with IP collaborations becoming the core driving force. The global and Chinese trendy toy markets are growing against the trend, with the global trendy toy market expected to reach USD 41.8 billion in 2024, a year-on-year increase of about +14%. Looking back at the development history of trendy toys, the penetration rate of the Chinese trendy toy market has rapidly increased in the post-pandemic era, jumping from 24.50% in 2019 to 65.72% in 2024. The firm believes this is mainly due to the shift in emotional consumption motives among Generation Z and the increase in willingness to pay for emotional value. Meanwhile, the core selling point of trendy toys in the past was authorized IP, focusing on the creation and visual image of the IP, which catered to the “static” aspect of toys. The trendy toy market mainly targets young consumers, while AI toys endow toys with “dynamic” capabilities, namely interactivity, companionship, and education (Q&A). Overall demand is expected to radiate across all age groups, and AI is likely to become the core catalyst for the toy market following trendy IP, with potential far exceeding that of Generation Z during the trendy toy boom. From a neutral perspective, the firm believes that the penetration rate of AI toys will increase at least as fast as that of trendy toys, with domestic penetration rates expected to reach 29%/41%/47% in 2026/2028/2030, and the domestic market is expected to approach 85 billion yuan by 2030 AI + Plush Toys May Be an Important Lever, Multiple Drivers for the Explosion of Domestic AI Toy Industry

AI interactive dialogue scenarios are expected to become the main demand objects for AI toys. At the same time, from the perspective of toy category structure, the two largest categories in China are plastic toys and plush toys, with plastic toys primarily consisting of building block products, which have limited potential for AI integration. In contrast, plush toys have the ability to combine with intellectual property (IP) and can integrate with communication modules/large models, significantly enhancing emotional interaction capabilities. Currently, plush toys account for about 12% of the category, second only to plastic toys, and have considerable market space, with a higher acceptance of AI upgrades. "AI + Plush Toys" is expected to become an important lever for the explosion of AI toys. Additionally, domestic AI toys have manufacturing costs, research and development cycles, iteration speeds, and supply chain completeness that are far superior to other regions. Domestic manufacturers are actively laying out original and internationally renowned IP authorizations, and the combination of software and hardware is expected to break through, creating blockbuster domestic AI toys