Why did the company establish the Frégat brand? The Fregat brand is the second largest self-created brand after the company's “McFuddy” brand. It is a high-end cat food brand established by the company in line with the rapidly rising cat economy and a more sophisticated staple food market. It is also an initiative to improve the company's brand matrix and further enhance the comprehensive strength of dog+cat food.

What is the reason for Frégat's rapid growth? Fregat directly hit consumer pain points and did his homework in terms of product raw materials, production equipment, production technology, product packaging, and brand operation. Compared with the McFuddy brand, it has been upgraded in all aspects. (1) Production side: Fregat adheres to the product concept of using only fresh meat and rejecting meat powder, carefully selects high-end ingredients to ensure traceability of raw materials, and uses the US Wenger TX85 patented high-fresh meat direct filling technology to add a high proportion of fresh meat to make cat food with high natural high palatability, easy digestion and absorption, and high nutritional value to ensure that pet owners can buy it with confidence and that pets can eat it with peace of mind. (2) R&D side: Fregat pursues the development of small-volume, innovative, exquisite and differentiated product models to shape the brand's high-end image. Every time a new product or flavor is launched, it is innovative and targeted, highlighting the brand's professionalism and high-end. (3) Product design: Based on the pain points of cats being picky eaters, small food intake, and careful purchases by pet owners, the company uses small specifications to package Frégat series products. This ensures that the food that cats eat every time they are kept fresh and not wet, and also allows consumers to buy trial packs at low cost to try them out, increasing the probability that users will break the ice when they buy it for the first time. (4) Brand operation: Set up a separate team to operate the Frégate brand, accurately understand channel changes, and carry out differentiated operations based on the characteristics of each channel. We believe that as Fregat's brand awareness increases, there is great potential for later growth.

What do you think of the company's high-end prospects? First, the high-end brand Fregat is realising its ability to grow rapidly, gradually dispelling the market's concerns about the operational strength and ability of high-end brands; secondly, the company is also continuously increasing the development and promotion of the new high-end series of McFuddy's products. We believe that incubating the next “Frégate” is just around the corner. Finally, in the long run, competition in the domestic pet food market will evolve from simple price competition and channel competition to brand competition, and companies with brand power advantages are expected to enjoy brand premiums. The company's high-end settlement is expected to bring about a continuous increase in price band and gross margin; at the same time, the company's accumulated advantages in marketing and promotion and customer base operations are expected to improve the efficiency of the use of sales expenses, improve the company's profitability, and eventually advance into domestic pet food giants.

Investment advice: The company's leading position continues to be strengthened, and its brand building ability is continuously verified. While increasing the market share of domestic brands, it continues to achieve steady net interest rates, and is expected to become a pet track giant. Based on the above analysis, we expect the company's revenue for 2024-2026 to be 52.41/64.55/ 7.864 billion yuan, respectively, and net profit to mother of 6.15/8.02/10.42 billion yuan, respectively. The PE corresponding to the current stock price is 34.3/26.3/20.2 times, respectively, maintaining a “buy” rating.

Risk warning: Risks such as fluctuating raw material prices, increased competition in the domestic market, brand promotion falling short of expectations, and untimely updates of data or information used in research reports.