The wave of &#34;millet economy&#34; is attracting more and more trendy toy companies to embark on the IPO path.
Following POP MART (9992.HK) and Blokus (0325.HK), China's third-largest IP toy company 52TOYS has submitted its application to the Hong Kong Stock Exchange.
However, 52TOYS is far from the scale of leading players.
In 2024, 52TOYS achieved revenue of 630 million yuan, less than one-twentieth of POP MART's revenue.
Its profitability is even weaker, with an adjusted net profit of only 32.013 million yuan in 2024, about one percent of POP MART's.
Different fates for the same industry. While POP MART's market value continues to hit new highs, the market's enthusiasm for 52TOYS is not particularly high.
Just less than half a month before submitting its application, 52TOYS completed its C+ round of financing, with Wanda Film (002739.SZ) subsidiary Ying Shiguang and related party Ru Yi Xingchen joining the shareholder ranks.
Based on the newly registered capital amount, 52TOYS's valuation is approximately 4.289 billion yuan, which has hardly changed compared to the C round financing three and a half years ago.
For 52TOYS, the industry dividend period is undeniably fading.
In the field of proprietary IP, it is difficult for latecomers to replicate POP MART's lead, while the licensed IP sector is highly competitive, with categories like card games and building blocks already being claimed.
Whether to continue to stubbornly develop self-researched products or to strengthen its competitiveness in the copyright field, 52TOYS needs to quickly identify its core advantages.
<h2>Original &#34;Disappointment&#34;</h2>
52TOYS's starting point is not far from that of POP MART.
In 2016, when it launched its self-developed transforming mech toy series &#34;Beast Box,&#34; POP MART's signature IP Molly had just been introduced.
Compared to the simple lines and elusive emotions of Molly, &#34;Beast Box&#34; is a more toy-centric, action figure aimed at male users.
The two founders of 52TOYS have been in the toy industry for many years. Chen Wei was a distributor for international toy brands like Bandai and McFarlane, while co-founder Huang Jin was a co-developer of the board game &#34;Three Kingdoms Kill.&#34;
In recent years, the consumer group for blind boxes in China has mainly consisted of young women, which has led to 52TOYS entering the market early but missing out on the development dividend period of trendy toys.
By 2019, when the company launched its first proprietary trendy IP, POP MART's Molly had already achieved annual sales exceeding 400 million yuan.
The &#34;Beast Box,&#34; which bears the company's expectations, has achieved a GMV of 190 million yuan over the past three years, less than one-third of the sales of its licensed IP product series Crayon Shin-chan.
The bottleneck in the development of original IP has also led the company to turn its attention to the more certain licensed IP field.
In 2024, the sales proportion of 52TOYS's licensed IP products has increased from 50% two years ago to 65%, while proprietary IP accounts for less than a quarter.
To reduce investment risks, the industry generally chooses well-established, commercially mature top IPs with stable fan bases, such as Disney series, Sanrio family, Detective Conan, and Crayon Shin-chan.
However, due to intensified market competition, 52TOYS admits it cannot guarantee the successful renewal or maintenance of licenses
Even with a successful renewal of contracts, the company faces the challenge of homogenized competition against the backdrop of the industry's general recognition of IP value and pursuit of top-tier products.
In the face of fierce competition, 52TOYS chooses to win by volume.
In 2024, the total number of authorized IPs reached 80, an increase of 25 compared to last year, surpassing the higher proportion of authorized business of Blokus and Card Game during the same period.
This has driven the IP authorization cost from 33.78 million in 2022 to 45.76 million in 2024.
Popular IP authorizations generally adopt a model of guaranteed income + sales revenue sharing, requiring re-authorization at regular intervals.
To ensure the recovery of IP costs, the company expands categories as much as possible, hoping to hit a bestseller among them.
The product line now covers static dolls, movable dolls, transforming mechas, assembly toys, wind-up toys, plush toys, and derivative peripherals.
The authorization model has indeed created some bestsellers.
The GMV of 52TOYS' Crayon Shin-chan and Tom and Jerry series ranks first among similar IP products in China.
The Crayon Shin-chan IP has generated 600 million GMV for the company to date, accounting for 40% of the company's sales in 2024.
Additionally, the Strawberry Bear plush figure has sold 270 million GMV in just over a year since its launch.
Supporting the bestsellers is, on one hand, the IP traffic, and on the other hand, the massive and agile new SKU launches.
52TOYS currently has a total of 2,800 SKUs, with an average of 500 new products launched annually, comparable to the launch frequency of POP MART last year.
However, the complex SKUs and product lines indeed pose challenges to the company's operational efficiency.
In 2024, 52TOYS experienced a net cash outflow of 8.25 million from operating activities, whereas the previous two years saw net inflows.
Inventory grew from 84.4 million to 154 million, a year-on-year increase of nearly 83%; trade receivables expanded from 38.6 million to 51.9 million, a year-on-year increase of 34%.
<h2>Channel Troubles</h2>
Limited sales channels are another challenge that 52TOYS is currently facing.
In 2020, 52TOYS opened its first brand store in Sanlitun, Beijing, and by the end of 2022, the number of stores had reached 19.
The decline in offline consumption has severely impacted the brand's offline self-operated business.
In the past three years leading up to the end of 2024, the brand opened 7 self-operated stores and closed 13, with total asset impairment amounting to 22.4 million.
In just the first half of this year, another 5 stores closed, leaving only 5 brand stores in Beijing, Chengdu, Tianjin, and other locations.
While offline contraction is occurring, the growth of online self-operated channels has also stagnated.
In 2024, online channel revenue was 139 million, an increase of only 20 million compared to two years ago, with its proportion of total revenue declining to 22%.
The reliance on distributor channels has instead increased, with revenue proportion climbing to 67%, becoming the main pillar of performance.
Through cooperation with distributors, 52TOYS has supplied large toy retail stores, chain bookstores, boutique department store chains, cinemas, airports, and other channels, covering over 20,000 terminal outlets.
The discount for distributors typically ranges from 50% to 60%, resulting in a gross profit margin of only 36.9% for sales through distribution channels, which is 5.5 percentage points lower than that of online direct sales
In the IP derivatives industry, both Card Game and Blokus primarily sell through distributors, but they hold leading advantages in the card and building block figures sectors, respectively, and benefit from the appeal of the Ultraman IP among younger audiences, resulting in significant scale effects.
Compared to card games and building block figures, 52TOYS has a diverse range of toy types and more complex craftsmanship processes, with annual mold costs exceeding 20 million yuan.
Unfortunately, the higher costs have not translated into considerable premiums.
In contrast to the over 65% gross profit margins of POP MART and Card Game, 52TOYS has less than 40%, with an adjusted net profit margin of only 5%.
<h2>Exploring Overseas Markets</h2>
The good news is that 52TOYS is still expected to benefit from the penetration dividends of trendy toys in overseas markets.
A senior practitioner in the trendy toy field, Song Ming (pseudonym), told Xinfeng that Chinese trendy toy blind boxes have a certain mental dividend period in Southeast Asia. &#34;MINISO (9896.HK) made overseas consumers realize for the first time that authentic Disney IP derivatives can be so cheap.&#34;
In the past two years, 52TOYS' growth in overseas markets has consistently outpaced that in domestic markets.
From 2022 to 2024, the compound annual growth rate of overseas revenue exceeded 100%, increasing its share from 7.6% to 23.4%, covering Southeast Asia, Japan, South Korea, and North America.
Among these, the Thai market is the core of its overseas expansion.
At the end of 2023, 52TOYS opened its first overseas store in Thailand, generating nearly 3 million yuan in revenue in the first month.
In the following year, 52TOYS opened 10 brand stores in several key commercial districts in Thailand, choosing top-tier core business areas. In 2024, the GMV of the Thai market grew fourfold year-on-year.
By the end of 2024, there will be 90 overseas distributors operating 16 overseas authorized brand stores.
52TOYS plans to establish over 100 self-operated brand stores in overseas markets in the future.
On one hand, it will expand the overseas authorization scope of well-known IPs, promoting unique products such as national trend culture and cultural IPs; on the other hand, it will strengthen cooperation with local designers and attempt to build an overseas supply chain system.
However, both in terms of IP resource endowment and expansion speed, it lags behind TOP TOY, which also sees overseas expansion as an important goal.
By the end of 2024, TOP TOY's store count had reached 276, planning to open over 1,000 stores in 100 core business districts worldwide within five years.
Song Ming believes that in the short term, overseas consumers are easily attracted by the rich IP displays and relatively low pricing strategies of stores. &#34;However, the core business resources in Southeast Asia are limited, and the situation of homogenization and internal competition seen domestically will eventually repeat.&#34;
&#34;Core competitiveness still depends on whether it can create a phenomenon-level exclusive IP,&#34; Song Ming said.
<h2>What is the Way Out?</h2>
One opportunity left for 52TOYS is the trend of upstream and downstream integration in the industry under the &#34;Guzi Economy&#34; wave.
After the explosive success of Nezha 2, domestic copyright holders have deeply recognized the value of the derivative market and are pushing to transform themselves from content suppliers to IP operators, which provides more room for cooperation between the two business models.
For example, 52TOYS has successfully brought in Wanda Pictures as a strategic investor
As early as 2023, both parties collaborated to develop the transforming toy robot dog &#34;Benben&#34; and the doorframe robot product featured in &#34;The Wandering Earth 2.&#34;
As 52TOYS stated: &#34;Large, multi-category participants can become long-term partners for IP owners, providing one-stop solutions, higher operational efficiency, and coordinated IP promotion.&#34;
The cooperation with Wanda Pictures is indeed expected to inject new IP resources into 52TOYS and open up the sales channel of chain cinemas.
However, in the face of a shrinking film market, there is also the possibility that the copyright holders of film and television IP and the derivative parties may &#34;misjudge each other as the People's Liberation Army.&#34;
The specific ways of cooperation need to be refined.
The demand for film and television IP derivatives often explodes shortly after the film's release. For a long time, there has been a significant time mismatch between the popularity of the IP and the launch period of the derivatives.
The industry is attempting to advance the development phase of IP derivatives that have a certain fan base.
However, the box office contrast of &#34;Feng Shen 2&#34; and &#34;Ne Zha 2&#34; during this year's Spring Festival indicates that this approach still cannot completely avoid risks.
52TOYS is also developing cooperation partners beyond film and television and games, such as museums, theme parks, and tourist attractions as mainstream derivative sales scenarios.
The &#34;Beast Box&#34; series characters, based on dinosaurs, wild animals, and insects, are popular among teenagers and animal lovers, and have already settled in Changlong Resort, Haichang Ocean Park, and the China Science and Technology Museum.
The &#34;Super Activation&#34; series, which focuses on historical and cultural creative peripherals, is expected to further penetrate channels such as cultural tourism scenic spots and museums, following an urban cultural creative route.
However, currently, this type of business only accounts for about 2%, making it difficult to make a significant contribution to performance.
The different collaborations between IP and scenarios have not made 52TOYS abandon its original intention of developing its own IP.
As the core self-owned IP, the Beast Box has made detailed settings for its worldview and various concepts, and has written an official IP white paper.
The IP derivative novel in collaboration with science fiction writer Wang Nuonuo is set to be released before the end of the year, and the company also plans to launch themed animations and films in the near future.
The operation of the Beast Box will reference Japan's &#34;Production Committee Model,&#34; establishing a binding interest and exclusive cooperation relationship between copyright holders and toy companies at the IP conception stage.
In Songming's view, this model itself is not new; the key is whether 52TOYS can master the full-link dominance of IP development, production, and marketing. &#34;Many manufacturers have tried before, but relying solely on IP authorization, lacking full-link collaboration, still makes it difficult to achieve resource integration.&#34;
Doing IP is destined to be a low-probability, high-odds business.
After the juiciest fruits have been picked by the top players, 52TOYS needs to carve out a new path for itself.

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The troubles of the industry’s third player

- The rise of the "Guzi Economy" is prompting more toy companies in China to pursue IPOs, with 52TOYS recently filing for one, despite its smaller scale compared to industry leaders like Pop Mart.  
- In 2024, 52TOYS reported revenues of 630 million yuan, significantly lower than Pop Mart, and is shifting focus from original IP to licensed products due to intense competition.  
- The company is exploring overseas markets, particularly in Southeast Asia, while facing challenges in maintaining profitability and operational efficiency amid a crowded market.

Why is 52TOYS, backed by Wanda, struggling to become the next POP MART?