Recently, we have been tracking the business situation of Petty Co., Ltd., and the updated views are as follows:
Overseas business is progressing in an orderly manner, and domestic independent brands are actively expanding. Overseas ODM business conditions are good, major customer inventory levels have basically returned to normal levels, and the full-year ODM business is expected to recover to 2022 levels. The company is also expanding channels such as overseas supermarkets, which is expected to bring in additional volume. Domestic independent brands have maintained good performance. Among them, the Jueyan brand, as the main driver of growth, has accumulated a certain user base. Under the domestic substitution logic, it continues to maintain a high revenue growth rate, with monthly sales reaching more than 10 million levels. The Jue Yan brand launched a new staple food product in May '24. Terminal feedback is good, and sales are expected to reach the level of 10 million throughout the year; the 24H2 Jueyan brand is expected to further launch a series of new snacks produced by the New Zealand factory, which will continue to bring in new volume. The Haushijia brand continues to be optimized, and it is expected that a series of cost-effective products will be launched in the future.
New Zealand staple foods have entered the commercial production stage, and the revenue side is steadily contributing new amounts. The New Zealand staple food factory will be officially put into operation in March 2024. A certain number of new customers have been accumulated in the early stages. ODM business customers cover brands in New Zealand, Australia, the US and China, and the sales scope includes Australia, Southeast Asia, China, and a small number of European and US regions. The staple food business is mainly ODM business. After domestic independent brands pass related processes such as brand registration and recipe verification, the share of independent brand sales is expected to increase. New Zealand's staple food revenue is expected to reach nearly 100 million in 2024; factory capacity utilization is expected to increase to 20-30% in 2025, helping the factory achieve break-even. Furthermore, compared to the category attributes where labor accounts for a relatively high proportion of pet snack production, New Zealand staple foods are mainly produced by machines, and the gross margin is relatively higher. The scale effect will be released with subsequent volume increases, which is expected to further enhance the company's profitability.
Capacity utilization continues to increase, and profit levels are expected to increase. On the production side, under the company's existing production line layout, there is still room for improvement in capacity utilization, and there are no plans for large capital expenditure in the future. Among them, in terms of snacks, the Vietnamese and New Zealand factories are almost full (production capacity is 15/ 20,000 tons, respectively). The room for production increase mainly comes from domestic and Cambodian factories (domestic production capacity is about 15,000 tons; Cambodia's production capacity is 11,200 tons, in the climbing phase in 2024), and the Cambodian factory has already achieved profits in 24Q1, which is expected to further contribute to profits throughout the year due to increased order volume. In terms of staple foods, the New Zealand plant has a production capacity of 40,000 tons, which is expected to cover part of operating expenses in 2024 and reduce the impact of depreciation and amortization on the overall profit side. The two domestic wet grain production lines have a production capacity of 6,000 tons, and one of them is already fully produced; some production lines for freeze-dried food and air-dried food are expected to be put into use in 2024.
Profit forecast, valuation and rating: We maintain the 2024-2026 net profit forecast of 1.25/1.71/209 million yuan respectively, corresponding EPS of 0.50/0.69/0.84 yuan, respectively. The current stock price corresponds to P/E of 27/20/16 times, respectively. The company's overseas export business continues to improve, and the staple food layout helps the company develop in the long term and maintain an “gain” rating.
Risk warning: rising raw material prices, risk of exchange rate fluctuations, and the performance of staple foods falling short of expectations.