Outstanding brand power, strengthened channel power, strong leaders

Recently, we went to Gaibao Pet for offline research. Through communication with the company's management, we have further deepened the judgment of the leading company, the strongest company, Hengqiang. Taking into account that the company will no longer act as an agent for K9 in 2024 and beyond, we have slightly lowered our revenue forecast. Considering the initial results of the company's high-end brand, we slightly raised our profit forecast.

The company is expected to achieve net profit of 6.00/7.28/919 million yuan in 24/25/26 (previous value: 541/6.69/861 million yuan), referring to the comparable company China Pet Stock 24xPE in 24 years. Considering that the company is a leading domestic pet company, outstanding product strength, excellent channel power, and deep brand barriers, the high-end cat staple food brand Fregat achieved excellent results in 2023, giving the company 40 times PE in 24 years, with a target price of 60.0 yuan, maintaining a “buy” rating.

The high-end brand paid off for the first time, and the 618 data got off to a good start

The company has now formed a brand matrix of “McFuddy+Fleggart+Waggin' Train”. Among them, Frégart is a high-end cat staple food brand fission from McFuddy. It is estimated that it will achieve annual revenue of about 300 to 400 million yuan, exceeding our previous expectations of about 200 million yuan. McFudi initially focused on the mid-range, then launched high-end products such as goat milk/barf series/baked goods one after another. It is estimated that its high-end series will account for about 15% to 20% of revenue in 2023, an increase of about 5 tons over 22-5 pc. In 2024, 618 had a good start, and the Fregat brand rose strongly in the Taotian platform's pet brand rankings and successfully reached the top three. However, during the 618 and Double Eleven promotions in 2022 and 2023, the brand's performance was not outstanding; they all ranked outside of the top 20. It can be seen from this that the high-end effect of the company's brand is remarkable.

Basic R&D has achieved first-class brand power, and the advantages of emerging channels are obvious

Gaibao Pet has special laboratories such as dog and cat nutrition centers and new product research centers. It is committed to developing pet foods that are truly beneficial to the healthy growth of Chinese dogs and cats, starting from the pet's own needs. This also explains why Gaibao has been able to create popular products such as the Double Food Package series, the Barf series, and the Baked Fresh Series one after another. The company is also forward-looking when it comes to prescription food and functional food, which are the top products developed in pet food. Furthermore, the company knows how to operate traffic, and can always follow the right pace every time channel dividends are switched. Now, traffic growth points are gradually shifting from window e-commerce to content e-commerce. The company has stabilized the basic markets of Taotian and Jingdong, sought growth through the Douyin channel, and has achieved impressive results.

The industry has prospects, the pattern is undecided, and the leaders are strong

China's pet industry has broad prospects, and there is still a gap between the mature markets of the US and Japan in terms of penetration rate and single pet spending. Moreover, the competitive pattern of the industry is undecided, and there is still room for improvement in domestic pet brands. In this process, it is inevitable that high quality production capacity will eliminate poor quality production capacity. First, “Shandong Food” replaced “Hebei Food,” and the second was the elimination of high-quality brands with outstanding product quality, R&D, and innovation capabilities, and low-end brands that only imitate and lack real product power. Good Bao Pets are always strong and continue to be optimistic.

Risk warning: Domestic consumption growth falls short of expectations/domestic pet breeding falls short of expectations/independent brand building falls short of expectations/raw material prices fluctuate greatly, etc.