Core views:

A leading domestic pet food leader, high-end brands have promoted a significant increase in profitability. The company was founded in 2006, began processing overseas pet food, and founded its own brand “Maffdy's” to sell domestically in 2013. In the first half of 2024, the company achieved revenue of 2.427 billion yuan, an increase of 17.48% over the previous year. In recent years, the company has adhered to the high-end brand strategy, and the gross margin of the staple food business reached 44.70% in the first half of 24, an increase of 12.78 percentage points over the previous year.

Through years of overseas OEM accumulation, the global layout highlights the advantages of the supply chain. The company has accumulated 20 years of overseas pet food OEM and R&D experience, and has accumulated well-known overseas customers such as Walmart and Spectrum. In order to reduce the impact of tariffs, the company set up a factory in Thailand in 2015 and further opened up the overseas supply chain through the acquisition of the American brand Waggin' Train and its overseas production base. After 24 years of export recovery, the company's export business is expected to continue to benefit.

Domestic goods have emerged as pioneers, and diversified marketing is driving the transformation of brand traffic. The company's solid R&D strength has given its own brands stable product quality and continuous product innovation capabilities, and has built a McFuddy, Frégat and Wang Zhenchol brand matrix to cover all categories including pet staple foods, snacks and health products. In 2023, the revenue of its own brand business was 2.745 billion yuan, an increase of 34.15% over the previous year.

At the same time, the company opened up the market for young consumers through pan-entertainment marketing, achieved rapid online business growth through accurate marketing and content-driven, and achieved remarkable results in traffic conversion. In the first half of '24, the company's direct sales revenue on third-party platforms was 0.866 billion yuan, an increase of 61.24% over the previous year.

Profit forecasting and investment advice. We expect the company's net profit to be 0.564/0.751/0.984 billion yuan respectively in 2024-26, up 31.5%, 33.2%, and 31.0% year-on-year respectively, with corresponding EPS of 1.41, 1.88, and 2.46 yuan/share, respectively. Referring to the industry average valuation, considering that the company is the industry leader, and its own brand is the number one domestic brand and has high growth potential, we will give it a 25-year 30xPE with a reasonable value of 56.33 yuan/share, giving it a “buy” rating.

Risk warning: Risk of fluctuations in raw material prices, intensifying market competition, falling short of expectations in sales, falling short of production capacity release, etc.