CICC: Maintains BLOKS (00325) outperform rating, lowers target price to HKD 100.

CICC released a research report stating that due to the underperformance of some new products by BLOKS (00325), the net profit forecast for 25/26 years was lowered by 19%/17% to 650 million/870 million yuan respectively. The net profit forecast for 27 years was introduced for the first time at 1.07 billion yuan. The current price corresponds to 18/15 times the adjusted P/E ratio for 26/27 years. The rating of outperforming the industry is maintained. Based on the adjustment of profit forecasts and changes in market risk preferences, the target price was lowered by 26% to 100 Hong Kong dollars, corresponding to 26/27 years' adjusted P/E ratios of 26/20 times, with a 40% upside potential compared to the current price. CICC's key points are as follows: Company Overview: Recently, the firm conducted a company research and had in-depth discussions with the management on topics such as strategic review and outlook, performance of new product categories, and overseas expansion progress. The firm believes that in 25, the company conducted large-scale trials and errors, while in 26, the company plans to focus on trend categories moderately, which will likely improve performance certainty. The focus will be on the performance of new product categories and overseas expansion in the future. 1. Focus on key categories in 26, expected to improve quality and efficiency Looking back at 25, the company explored the business boundaries around the strategies of targeting all demographics, all price points, and globalization. The 9.9 yuan down-market product line performed well, but some categories such as female products did not meet internal targets, to a certain extent, diverting resources and dragging down profit performance. Looking ahead to 26, the company is shifting its focus towards stability and certainty: on the product side, it plans to maintain a stable pace of new releases to improve the success rate of individual products; on the financial side, with the maturity of the team structure and stable personnel scale, the operating leverage effect is expected to show. In addition, the firm expects the company to stabilize and increase gross margin through the control of low-margin flow products, combined with the dilution of model opening costs due to economies of scale. 2. Successful cultivation of building block car category, expected to drive future growth The company has established the building block car as one of the two core strategic categories alongside the building block figure. It plans to maintain a monthly new release pace in 26, and its gross margin level also contributes positively. As for the building block figures, the core IP operations continue to deepen, and the Transformers series have effectively covered the price range from 9.9 yuan to 249 yuan, while Ultraman continues to stimulate demand through new size SKUs. In addition, the company's strategy for all demographics is advancing, with expectations of an increase in the proportion of adult products in 2H25. 3. Good performance in overseas markets, with growth leading in the Americas In 2H25, the company's overseas business continued to grow at a high rate, with an expected doubling growth rate on a quarter-over-quarter basis. Due to pricing strategies and product strength, the company has maintained a price advantage even under the impact of North American tariffs, smoothly entering mainstream KA channels such as Walmart, and the future order volume is expected to stabilize. The company expects North America to become its largest single overseas market in 26; Southeast Asia will increase its presence in major markets such as Thailand and Vietnam, supported by logistics warehousing facilities. Additionally, the European team is currently being built continuously, and the firm believes that there is still vast potential for growth in the future. Risk Warning: Increasing competition, loss of authorized IP, new products falling short of expectations.