The company's recent situation
Recently, we organized an offline survey of Gaibao Pet to have in-depth discussions with management on the company's recent situation and future development strategies. We believe that the pet food industry is still in a golden period of rapid growth in volume and price. As a leading domestic pet food brand, the company thoroughly studies the physical characteristics of domestic pets, understands the needs of domestic pet owners, adapts to the iteration of domestic channels, and efficiently exploits the advantages of strong product strength, and the brand potential is expected to continue to strengthen.
reviews
1. The consumption of pet food is growing faster than the number of pets. Consumption of single pets has been upgraded, and the industry is still in a golden period of sharp rise in volume and price. We believe that 1) Quantity: According to data from the white paper, the number of cats and dogs in China was +6.8%/+1.1% year over year. With the popularization of scientific and refined pet care concepts, the penetration rate of professional pet food is expected to continue to increase, and the growth rate of pet food consumption in China may be faster than the growth rate of pets. According to Euromonitor, the penetration rates of Chinese/US/Japanese pet cat food and dog food in '22 were 34%/90%/94% and 19%/76%/92%, respectively.
2) Unit price: Pet staple food is a high-frequency, high-viscosity product. We estimate that in '23, China's consumption of single pet food was only 1202 yuan/piece, accounting for only 2.3% of the per capita disposable income in urban areas. Pet owners have limited sensitivity to pet food prices. Under the “anthropomorphic” trend, consumption has upgraded or continued.
2. Independent brands are growing rapidly, and the brand product matrix is being upgraded to high-end and the cat economy, and performance is expected to be released quickly. We believe that 1) Brand growth: The company's own brands have grown excessively online. According to Jiuqian and Feigua data, in April '24, the company's online omni-channel sales (Tmall, JD+ Douyin) were +20.8%/+208.1%, respectively, and the company's overall online ratio was +37.2%. From January to April '24, the company's overall online sales were +32.4%; 2) Structural optimization: the company's high customer unit price, high profitability, and large single product series such as Fregat and BARF increased rapidly, supporting continuous improvement in brand tone and rapid release of performance. We estimate that in April '24, Fregat accounted for 20% online, and high-viscosity, high-margin staple food products accounted for more than 60%, and cat products accounted for more than 50%; 3) Raw materials and exchange rate: According to iFind, white feather broiler was the same price ratio from early 24 to mid-May -20%, the USD/RMB exchange rate is 7.1320 at the beginning of '24 depreciated to 7.2195 in mid-May.
3. We are optimistic about the broad development prospects of leading domestic pet food brands that will continue to strengthen their potential and lead the optimization of the industry pattern. We believe that 1) Industry pattern: According to Orui, the CR5 of Chinese/American/Japanese pet food companies in '23 was 24.5%/64.6%/67.1% respectively, and the leading market share in the industry was 11.2%/20.3%/27.5% respectively. China's pet food competition pattern still has a lot of room for optimization, and there is plenty of room for growth as a pet leader; 2) Excess growth: on the product side, the company has built its own online marketing team to understand the needs of domestic pet owners; on the channel side, it has experienced the wave of online e-commerce and grasped the needs of domestic pet owners. Channels are iterating from shelf e-commerce to content e-commerce, building scarce barriers. As brand potential is strengthened and production capacity is released, it is expected to lead the continuous optimization of China's pet food pattern.
Profit forecasting and valuation
Keeping the profit forecast unchanged, the current stock price corresponds to 44/34 times P/E for 24/25. The target price was raised by 10% to 69 yuan based on the strengthening of brand potential, corresponding to 50/40 times P/E in 24/25, with 16% upward space.
risks
Increased competition in the domestic market; fluctuations in raw material prices and exchange rates; trade frictions and overseas business risks.