We are a leader of assembly character toys in China. Leveraging our portfolio of more than 500 patents, in-house IP development capability and cooperative relationships with approximately 50 renowned IP franchises on a non-exclusive basis, we are dedicated to providing consumers with a wide range of quality-for-money assembly character toys and have achieved rapid growth. Our assembly character toys recreate the essence of IP characters. Through the combination of our product strength and supply chain capabilities, we are able to maintain cost advantages and continuously expand product categories. We have established a multi-channel sales network in China with a comprehensive and extensive consumer reach. We pivoted to offline sales channel with a focus on distributors as we began to offer assembly character toys in 2022. According to Frost & Sullivan, we are China’s largest and leading player in the assembly character toy segment with a GMV of approximately RMB1.8 billion in 2023. We are also a fast-growing toy company with a GMV growth of over 170% in 2023. Our market share in China’s assembly character toy segment and China’s assembly toy market in terms of GMV was 30.3% and 7.4% in 2023, respectively. China had an assembly character toy market size of RMB5.8 billion in terms of GMV, representing 5.5%, 14.3% and 24.4% of China’s toy market, characters toy market and assembly toy market in 2023, respectively.
We generated a substantial portion of revenue from the sales of products based on the Ultraman IP, which contributed to 63.5% and 57.4% of our revenue in 2023 and the six months ended June 30, 2024, respectively. We entered into a license agreement with an IP licensor to secure the rights to develop and sell products under the Ultraman IP in 2021, and has maintained a positive relationship ever since. This can be evidenced by the fact that before the expiration date, our Ultraman IP license in China was extended to 2027. We strive to continue to maintain such positive relationship through active communication, and do not foresee any material adverse changes to, or termination of, our relationship with the IP licensor of the Ultraman IP as of the Latest Practicable Date. See “— Key IP Information.” However, there can be no assurance that we will always be able to renew our licenses on favorable terms, if at all. See “Risk Factors — We may fail to obtain, maintain or renew IP licenses on favorable terms, and our IP proprietors or licensors may fail to maintain and protect their IPs.”
Evolution of Our Business
We have been dedicated to the design, development and sales of assembly toys since 2016. Starting from brick-based toys, we accumulated a wealth of knowledge in assembly toys which served as a solid foundation for expanding our product offering. We then strategically diversified our product offering to include assembly character toys. We started the research and development of assembly character toys in 2019 and began to offer such products in 2022, as we saw large growth potential driven by strong demand for toys that combine highly engaging assembling process and popular IP characters with strong and loyal fan bases. According to Frost & Sullivan, China’s assembly character toy market grew by a CAGR of 49.6% from RMB1.2 billion in 2019 to RMB5.8 billion in 2023, and is expected to grow at a CAGR of 41.3% from RMB5.8 billion in 2023 to RMB32.5 billion in 2028.
Brick-based toys and assembly character toys, both being assembly toys, share many similarities in product design and production. Both brick-based toys and assembly character toys employ the concept of standard components, have components that are compatible across various products, and involve assembling and connecting mechanism. On the other hand, the primary differences between our brick-based toys and assembly character toys are (i) the size of components, and (ii) that it is more difficult to recreate the essence of the IP characters with bricks. In addition, the raw materials and production process for brick-based toys and assembly toys are similar, which enabled us to leverage our expertise, knowledge and established relationship in production and supply chain management. This can be further corroborated by the fact that three of our partner factories have been working with us to produce brick-based toys since 2017, 2018 and 2021, respectively, and continued to produce assembly character toys for us afterwards.
Due to the abovementioned similarities, we are able to leverage our management and other experiences from brick-based toys in diversifying our assembly toy offering to include assembly character toys. Particularly, we have accumulated knowledge in product design (including connection mechanism and materials) and production (including molding, injection and painting). On the back of our experience in brick-based toys, we developed the Bloks System specifically for our assembly character toys. See “Business — Overview — The Bloks System.” Our assembly character toys quickly achieved success. We began to offer assembly character toys in January 2022. The revenue from our assembly character toys increased by 553.5% from RMB117.7 million in 2022 to RMB769.0 million in 2023, and increased by 323.8% from RMB241.4 million in the six months ended June 30, 2023 to RMB1,023.1 million in the six months ended June 30, 2024. In 2022, our assembly character toys achieved a gross profit margin of 36.8%, similar to that of brick-based toys. The gross profit margin further increased to 48.4% in 2023 and 53.3% in the six months ended June 30, 2024, exceeding that of brick-based toys at 38.7% and 38.1% for the respective periods.
Prior to the launch of our assembly character toys, we sold our brick-based toys through offline channels such as distributors and consignment sales as well as online channels. In 2021, 45.7% and 51.8% of our revenue were generated through offline channels and online channels, respectively. We pivoted to offline sales channel with a focus on distributors as we began to offer assembly character toys in 2022. This approach leveraged the local resources and market intelligence of distributors, enabling us to effectively penetrate the market. More specifically, offline distributorship allows our target consumers to conveniently experience and purchase our products offline. By utilizing offline distributorship, we were able to expand presence and drive our growth efficiently and effectively. In 2022, 2023 and the six months ended June 30, 2024, our offline distribution sales amounted to 48.2%, 83.6% and 91.6% of our total revenue, respectively.
Our Product Approach
We adopt a product approach that offers consumers a new choice in the highly popular character toys market. Through our product approach that employs an optimal combination of standard and customized components, we produce character toys that recreate the essence of the IP characters, and are fun to assemble and play with, and more accessible in terms of pricing. Our product approach enables us to effectively commercialize our self-developed and licensed IPs to strengthen and rapidly broaden our product offering. Surrounding our product approach, we have built the Bloks System. See “Business — Our Product Approach.”
The architecture of our assembly character toys draws inspiration from human physique to assimilate stability, mobility and appearance. Under this approach, we recreate characters that can be assembled, posed and customized with details through the combination of standard and customized components.
Market Opportunities
Assembly character toy is the fastest-growing segment in the global toy market and has significant growth potential. Due to the emergence of multiple product approaches and quality supply, assembly character toys enjoy significant differentiated advantages over traditional character toys, gradually becoming the preferred choices of consumers, with the penetration rate in the global toy market expected to increase in the long run.
According to Frost & Sullivan, the global and China’s character toy market reached RMB345.8 billion and RMB40.3 billion in 2023, and is expected to grow at a CAGR of 9.3% and 17.7% to reach RMB540.7 billion and RMB91.1 billion in 2028, respectively. Within the above markets, the global and China’s assembly character toy market reached RMB27.8 billion and RMB5.8 billion in 2023, and is expected to grow at a CAGR of 29.0% and 41.3% to reach RMB99.6 billion and RMB32.5 billion in 2028, respectively. The penetration rate of global and China’s assembly character toys in the character toy market is expected to increase from 8.0% and 14.3% in 2023 to 18.4% and 35.6% in 2028, respectively. Furthermore, the assembly product approaches can also be applied to multiple categories of toys, including vehicle toys and various scenery toys. In particular, the global and China’s vehicle toy market reached RMB96.7 billion and RMB15.1 billion in 2023, and is expected to grow at a CAGR of 2.9% and 6.3% to reach RMB111.6 billion and RMB20.5 billion in 2028, respectively.
Rich IP Portfolio
Our self-developed IPs and renowned licensed IPs form our rich IP portfolio. We have successfully developed two IPs in-house, including the children-development-oriented Magic Blocks (百變布魯可) and the Chinese culture-themed Hero Infinity (英雄無限). Our assembly character toys efficiently commercialize IP at scale and position us as a preferred partner of various proprietors of renowned IPs. As of the Latest Practicable Date, we had obtained non-exclusive licenses for approximately 50 renowned IPs from IP proprietors or licensors, including Ultraman, TRANSFORMERS, Naruto, Marvel’s Infinity Saga, Marvel’s Spidey and His Amazing Friends, Minions, Pokmon, Kamen Rider, Detective Conan, Hatsune Miku, Saint Seiya, EVANGELION, Hello Kitty, Sesame Street, SUPER SENTAI, DC’s Superman, DC’s Batman, Harry Potter and STAR WARS. Our rich IP portfolio enables us to offer products to reach consumers across different age groups and genders globally.
Comprehensive Product Offering
We capture the market opportunities and are committed to leveraging our Bloks System that combines standardization and individuality elements to create highly popular and fun assembly character toys, address global consumers’ widespread demand for toys that recreate the essence of IP characters, and deliver the joy of assembling. Through a large number of SKUs, a comprehensive price segment coverage and a rich IP portfolio, we have built an expansive matrix-style product offering and continue to serve consumers, fans and BFCs with a wide selection of products. As of June 30, 2024, we had a total of 431 SKUs available for sale, including 116 SKUs designed primarily for children under the age of six, 295 SKUs designed primarily for consumers between the ages of six and 16, and 20 SKUs designed primarily for consumers over the age of 16.
Our products offer consumers various quality-for-money propositions, including excellent experience, exquisite design and high quality.
‧ Fun experience. Our innovative and systemized assembling mechanism ensures our products are easy to play with. Consumers’ involvement in the assembling process promote individualistic expression. As such, our products have strong collectability and can provide consumers with long-term companionship.
‧ High quality. Our products are high quality, safe, enduring and exquisitely-designed with consistent assembling experience.
‧ Great value-for-money. Our product pricing strategy covers a comprehensive price range, and our mainstream products’ suggested retail prices primarily range from RMB9.9 to RMB399, with great value-for-money at each price segment. Our best-selling products in the mass-market price segment are priced at RMB39 per unit, while products in the value price segment that can reach a wider consumer group are priced from RMB9.9 to RMB19.9 per unit.
Source: Bloks Group (00325) Prospectus (IPO Date : 2024/12/31) |