Summary of the report:
Long-term ploughing pet products and food industry, the domestic traction rope subdivision track king. Since its establishment in 2004, the company has focused on the pet industry, mainly engaged in the R & D, production and sales of pet traction appliances, pet snacks, pet injection toys and other products, and has become the largest supplier of pet traction equipment in China. In 2018-2021, the company's revenue increased from 435 million yuan to 1.069 billion yuan, CAGR reached 34.99%; pet traction equipment revenue accounted for 57.33%, gross profit margin was 29.37%, higher than the overall level. Product structure, raw material price and exchange rate are the main factors that affect the company's gross profit margin.
The scale growth of the pet products industry is accelerating, and the market concentration is on the rise. The CAGR of the global pet products market was 2.79% in 2010-2015 and 6.93% in 2016-2021, showing an accelerated growth trend. China, as the world's second largest pet products market, grew from 21.5 billion yuan to 32.6 billion yuan in 2018-2021, with CAGR of 14.9% and CR10 of 11.9% in 2021. There is still room for improvement with low concentration. Pet products industry subdivides a large number of categories, showing a variety of needs. The growth of pet ownership and the introduction of relevant policies to regulate pet farming have promoted the expansion and concentration of the pet products market.
Focus on the development of overseas ODM business, give traction rope fashion concept, the level of net interest rate is higher than that of the same industry. In 2021, the company's overseas OEM business revenue accounted for 96.75%. Most of the customers were overseas well-known professional pet product chain stores and large international chain retailers. The continuity and stability of the business were guaranteed, and the sales expense rate was lower than that of the same industry. The R & D and design of traction rope highlight the fashion concept, the gross profit margin is higher, and the net profit rate of the company in 2021 is higher than that of the same industry about 10pcts. In the production mode, the company implements the combination of fixed production by sales and "self-production + outsourcing". From 2018 to 2021, the proportion of external cooperation of traction equipment is maintained at about 50%, and it is expected that the proportion of external cooperation will continue to decrease in the future. In the future, the company will continue to tap the potential of existing customers and expand new overseas customers, and increase domestic investment when the time is ripe.
Sit on the two major production bases in Cambodia, join hands in Zhonghua shares to expand overseas competitive advantage. In order to distribute global production capacity and deal with international trade frictions, the company has established Aitao and Ryder production bases in Cambodia based on tax incentives and labor cost advantages. Pet joined Aitao in mid-2019 and cooperated in the areas of orders and raw materials. Synergy with Zhonghua's business can reduce the company's overseas investment risk and complement each other in terms of production experience, product line and customer structure.
Investment suggestion: taking into account the company's competitive advantage in the field of domestic pet traction equipment, while constantly expanding the pet snack and toy business, it is estimated that the company's revenue in 2022-2024 will be 11.30 pound 1.397 billion yuan, its net profit will be 1.86 pound 2.20 billion, EPS 1.36 will be 1.61 million, and PE will be 18X/16X/11X in 2022-2024, covering for the first time. Give the company a "buy" rating.
Risk hint: overseas business growth is not as expected, RMB exchange rate fluctuates sharply.