At present, China's population growth is slowing down, and the phenomenon of unmarried and infertile young people is becoming increasingly prominent. More and more young people choose to keep pets as companions. "Pet consumption" has become a niche but fast-growing track.

There are very few listed companies in this track, and Petty Holdings (300673.SZ) is the hidden champion in the rubber chewing segment, ranking first in the world. The company's independent brands have developed rapidly in recent years and are now reaching a business turning point. The agency predicts that the company is expected to achieve high growth in 2024.

1. Rapid growth, a trillion-dollar blue ocean market is expected

People's Daily Online recently reported that according to statistics, the economic scale of my country's pet industry will be close to 300 billion yuan in 2023, and it has developed a pet industry that covers pets. An industrial chain covering the entire life cycle of food, clothing, housing, transportation, birth, old age, illness and death.

Pacific Securities research report shows that the scale of pet products in my country has maintained a year-on-year growth rate of 15%-20% in the past five years. Much higher than the GDP growth rate in the same period.

The "China Pet Food Industry White Paper" released by Deloitte China shows that by 2026, the size of China's pet food market is expected to reach 114 billion yuan, of which the compound annual growth rate of pet staple food, pet nutrition products, and pet snacks will respectively reach 17%, 15% and 25%.

From the perspective of individual pet consumption, cats and dogs are becoming more and more “valuable”.

Data from the "2022 China Pet Industry White Paper" show that in 2022, the average annual consumption of a single dog will reach 2,882 yuan, an increase of 9.4% from 2021; the average annual consumption of a single cat will reach 1,883 yuan, an increase of 9.4% from 2021. Growth in 2021 is 3.1%.

This phenomenon is not surprising.

Human beings are social animals and have a strong need to belong. A large number of contemporary urban young people do not get married, do not have children, and even reduce social interaction. At this time, "dogs" and "cats" have become important spiritual comfort for lonely contemporary people.

Wang Jinquan, a researcher at the Feed Research Institute of the Chinese Academy of Agricultural Sciences and secretary-general of the Pet Feed Branch of the China Feed Industry Standards Committee, believes that it is expected that in the next 10 years, domestic pet food will become a high-end brand and compete with international imported brands. The scale of China's entire pet industry will exceed one trillion by then.

2. Domestic substitution is accelerating, and Petty shares are taking advantage of the trend

For a long time, the OEM phenomenon has been common in China’s pet economy. OEM companies, as international The brand's "processing workshop" does not control product R&D, design and sales channels, and its profit margins are low.

However, the situation is changing quietly now. Many companies are actively transforming into independent brands after accumulating rich OEM experience. Domestic brands have developed rapidly in recent years, and domestic substitution has become a general trend.

In 2020, more than 80% of China’s pet food industry market share will be divided up by international brands. However, the price of pet food raw materials will skyrocket in 2022, and there is limited room for downstream price increases. This forces domestic pet food companies to transform and develop into the mid-to-high-end market. As domestic pet food brands occupy the market through their advantages in online and offline channels, the localization rate is increasing rapidly. China Galaxy believes that in recent years, the market share of imported brands has gradually been gradually divided by domestic brands.

Judging from the Double Eleven brand rankings in 2023, domestic brands on comprehensive e-commerce platforms are gradually increasing in volume. The top 10 Chinese brands in Tmall cat and dog food account for 6 shares. Compared with 2022, they have achieved A double increase in the number of rankings and listings.

Pettit Holdings is one of the earliest companies specializing in the pet food industry. The company was founded in 2002. In the early days, it mainly exported pet chew products through ODM/OEM. It has accumulated a strong voice in the field of chew chews and presided over the formulation of the domestic "Pet Food-Dog Chews" national standard. In recent years, we have developed independent brands and achieved remarkable results.

Chewing gum is a functional pet chewing food that can meet the chewing and biting needs of dogs as they grow and maintain oral health.

With a keen sense of smell, Petty Co., Ltd. vigorously explored the domestic market in 2019 and launched multiple brands to meet consumer needs. With reference to overseas experience, relying on its own R&D advantages and feedback from overseas markets, and based on the consumption characteristics of the domestic pet food market, the company has launched Zhineng, Haoshijia, Jueyan, ITI, SmartBalance, Begogo, "Petti", " CPET", "PEIDI" and other domestic and foreign brands.

The 2023 semi-annual report shows that Petty Co., Ltd.’s self-owned brand operating income performed relatively well, with a year-on-year increase of 63%, including a 79% increase in the first quarter and a 54% increase in the second quarter, accounting for 10% of the domestic market business revenue. The proportion of scale has further increased. Revenue from the independent brand "Jueyan" business continued to grow rapidly, with a year-on-year increase of 97%.

During the Double Eleven period in 2023, Petty Holdings entered the leading live broadcast room, and the total network exposure exceeded 100 million. Jueyan achieved revenue of 25 million, a year-on-year increase of 67%, and a year-on-year increase of 65%. Dried duck meat ranked TOP 1 on Tmall’s dog snack single product list, canned dogs ranked TOP 1 on Douyin’s puppy snack popularity list, and Tmall’s dog snack cans sold TOP 3. Haoshijia increased by 60% year-on-year.

3. The company has reached an inflection point and may achieve high growth in 24 years.

In 2023, Petty shares will turn from profit to loss. However, according to CICC's analysis, it is mainly due to the impact of overseas customers destocking. According to the company's WeChat official account, as the pressure on overseas inventory is lifted in 2024 and the trade environment continues to improve, the company's orders in the first quarter of 2024 will continue to grow. Against the background of a low base, 24 Export sales performance in the first half of the year is expected to achieve high year-on-year growth.

On the evening of the 23rd after the first signing of the contract, Petty Shares released a record of investor relations activities. The company received surveys from 63 institutions on February 21, 2024. The types of institutions were QFII, insurance companies, others, and fund companies. , overseas institutions, securities companies, and sunshine private equity institutions.

Research records show that Petty shares are currently full of orders. It is reported that with the completion of destocking by overseas customers, orders will gradually return to normal starting from the second half of 2023, and net profit will improve significantly quarter-on-quarter, with positive growth already showing in the fourth quarter of 2023. The current order production schedule has reached the beginning of the second quarter of 2024, and shipments in the first quarter will see significant growth.

West China Securities believes that Petty Holdings has reached an inflection point in its operations and expects to achieve high growth in 24 years.

It is worth noting that recently, Petty Co., Ltd.’s high-quality staple grain production line in New Zealand has been officially launched and will enter the stage of large-scale mass production. Staple food will be a new segment in the future planning of Petty’s pet food business, and will also bring new growth to the company.

After the operation of the New Zealand factory, the company will gradually transition from ODM to its own brand. With the release of New Zealand factory capacity in 2024, the company will form high-end pet food production lines in major categories such as pet chewable food, nutritious meat snacks, high-quality New Zealand dry food, new staple food and wet food in the future, with production bases in China, Vietnam, The Cambodian production base and the New Zealand production base have the ability to supply diversified products to major markets around the world to meet the needs of independent brands and domestic and foreign markets. The company is expected to use this strategic plan to develop to a new level in the next few years.