CICC: Maintain BLOKS (00325) outperforming industry rating, target price HK$90

CITIC Securities released a research report stating that it maintains its adjusted net profit forecast for BLOKS (00325) at 870 million/1.07 billion yuan for 2026/2027. The current stock price corresponds to a P/E ratio of 17.6/13.9 times for 2026/2027, maintaining an outperform rating with a target price of 90 HKD, which corresponds to a P/E ratio of 22.3/17.6 times for 2026/2027, indicating a 26.8% upside potential. CITIC Securities' main points are as follows: 1H26 Performance Exceeds Expectations The company announced its 1H26 performance: revenue of 1.78 billion yuan, a year-on-year increase of 32.7%, in line with the bank's expectations, with the contribution from the adult line and overseas markets rising faster than anticipated; the adjusted net profit was 401 million yuan, a year-on-year increase of 25.1%, surpassing expectations mainly due to ongoing optimization of expenses and better-than-expected gross margin for new products. At the same time, the board announced an interim dividend of 0.3247 HKD per share. 1. Rapid Growth in Building Block Vehicles and Adult Lines, Accelerating Overseas Expansion 1) By category, income from building block character toys was 1.59 billion yuan, a year-on-year increase of 19.6%; income from building block vehicles was 190 million yuan, accounting for 10.4% of total revenue, maintaining strong sales after price increases. 2) By positioning, income from products for ages 16 and above increased by 124% year-on-year to 440 million yuan, with its proportion increasing by 10.2 percentage points to 25%; income from 9.9 yuan products increased by 61% to 350 million yuan, accounting for 19.5%, with increases of 3.4/-1.1 percentage points year-on-year/quarter-on-quarter, and the company expects to maintain this within 20% for the year. 3) Domestic and overseas revenues increased by 15%/229% to 1.41 billion/370 million yuan, with revenues from the Americas/Asia/Europe increasing by 349%/111%/365%. The bank believes this was mainly driven by IP expansion and the release of accumulated channels. 2. Gross Margin Temporarily Affected by Product Structure, Expense Ratio Continues to Optimize The gross margin for 1H26 was 44.3%, a decrease of 4.1 percentage points, which the bank attributes to significant mold amortization costs for many new products, the production of building block vehicles still in the adjustment phase, and an increased proportion of the 9.9 yuan product line year-on-year. The expense ratio decreased by a total of 3.4 percentage points year-on-year, with operational efficiency steadily improving, including a 2.2 percentage point decrease in R&D expense ratio and noticeable operational leverage. Under the comprehensive impact, the adjusted net profit margin was 22.6%, a decrease of 1.3 percentage points. The bank believes that the costs of molds, overseas storage, and other initial investments will be diluted with increased production volume, and with continued cost reductions in building block vehicles, profit margins are expected to stabilize and improve. 3. Deepening the Three-Complete Strategy, Optimistic About the Companys Globalization Potential In terms of overseas development, there is enhanced penetration in North American channels and expansion into new areas in Europe; further diversification on the IP side, with a decrease in the proportion of Transformers IP, while Japanese IP is hot-selling in North America and Europe. On the operational side, BFC events/overseas fan communities and after-sales systems cover 17/42 countries, with a continually rich ecosystem for fan-created content. In terms of categories, there will be further focus on validated and scalable categories, accelerating the differentiation of building block vehicles, and naturally enhancing the appeal to collectors and high-value customers. The bank remains optimistic about the diverse growth momentum of the company under the Three-Complete Strategy. Risk Warning: Intensifying competition, loss of authorized IP, new products falling short of expectations, fluctuations in raw material prices.