Author: Pan Yan

Producer: Global Finance

In 2024, the mighty "pet army" will become the growth highlight of major e-commerce platforms. According to Xingtu data, the total sales of pet food on the whole network on Double 11 in 2024 increased by 22.92% year-on-year to 5.9 billion yuan.

In the market environment of fierce competition among many brands, Ganbao Pet (301498. SZ) brands such as Maifudi and Fregat increased by 65% year-on-year to 670 million yuan during the Double 11 period. Among them, McFudy has ranked first in the pet food and supplies category for four consecutive years.

The excellent performance is like a boulder thrown into a calm lake, causing heated discussions in the market - the pet food market has entered the era of dividends?

　　01

The trillion-dollar market is being pried up

A trillion-level Chinese pet economic market has been quietly pried up by a group of young shovelers.

According to iiMedia Consulting data, the scale of China's pet economy industry will reach 592.8 billion yuan in 2023, and the market size is expected to reach 1.15 trillion yuan by 2028.

Among them, pet food, as a rigid demand and high repurchase type of consumption, supports half of the pet economic industry. Judging from the recent pet consumption track financing events, the largest single financing in 2024 will be invested in a food company - Shuaike Pet, with a financing scale of 1 billion yuan.

The pet food industry is booming, and the performance of listed companies in the pet food industry is even more prominent.

In the first three quarters of 2024, Ganbao Pet experienced double-digit growth, with operating income increasing by 17.96% year-on-year to 3.671 billion yuan, and net profit increasing by 49.64% year-on-year to 470 million yuan.

In addition to Ganbao pet, China Pet shares (002891. SZ) reported a record high in the third quarter, with double-digit growth in revenue and net profit, which were 17.56% and 59.54% respectively. Petit shares (300673. SZ) performance was even more rapid, with revenue and net profit of 44.34% and 630.85% respectively in the first three quarters.

The rapid development will usher in the participation of many new players, and there are many industry giants trying to create a "second growth curve" in the pet food track, among which dairy companies are the most prominent, and Beingmate (002570. SZ), Yili shares (600887. SH), Nestle, H&H Group's brands are impressively listed.

According to Qichacha data, as of the end of October 2024, there were 3,949,400 surviving enterprises covering pet food-related businesses, of which 1,244,500 were newly established in 2024, accounting for one-third.

But just as coins have heads and tails, a surge in the number of players means that the race on the track is getting tougher.

Compared with the previous performance, the current growth rate of Ganbao pet has slowed down. From 2018 to 2023, the operating income will increase from 1.221 billion yuan to 4.321 billion yuan, with a compound annual growth rate of 28.76%; During the same period, the attributable net profit increased from 45 million yuan to 429 million yuan, with a compound annual growth rate of 56.98%.

At present, China's pet food market has not yet formed an absolute monopoly giant. In 2023, the total market share of the top 10 companies in China's pet food industry will be 31.30%, compared with the industry concentration of 76.10% in the United States and 85.30% in Japan.

In this context, even Maifudi, which has won the sales championship for a second time, will fall into the panic of "being squeezed off the altar" before forming an absolute brand moat.

　　02

Is premiumization the key?

The rapid development of the brand of Ganbao pet is mainly due to the domestic substitution of pet food.

In 2006, when Ganbao Pet was born, China's pet market was dominated by foreign brands such as Nestle and Royal. Like many domestic pet food brands, Ganbao Pet mainly relied on overseas processing business to make a living in the early stage of development, and its products were sold to North America, Europe, Japan and South Korea and other overseas regions, of which the North American market accounted for the highest proportion.

Although OEM has brought the first pot of gold to many pet food factories, its bargaining power is not dominant, and the gross profit margin of the industry is generally low. Until 2013, the United States launched a trade war, which directly led to the export volume of Ganbao pets plummeting from 150 million US dollars in 2012 to 20 million US dollars in 2013.

In this context, Ganbao Pet turned its attention to the domestic market and started brand transformation. In 2013, Ganbao Pet opened the dog and cat food consumption market with its own brand "Maifudi", and successively launched the mid-to-high-end brand "Fleet" specifically for cats, as well as the high-end dog food brand "Wang Zhenol".

But Ganbao Pet is not completely abandoning the overseas market. In 2021, Ganbao Pet entered the foreign supermarket channel through the acquisition of Waggin' Train, a high-end pet food brand under Nestlé Purina. In the same year, it won the general agent rights of New Zealand's high-end pet brands K9 Natural and Feline Natural in China.

From the perspective of revenue structure, the scale of overseas revenue of Ganbao Pet is still shrinking as a whole, from 48.17% at the peak in 2020 to 33.83% in 2023.

According to the layout of Ganbao pet in recent years, the company is pinning its hopes on upgrading the brand to "high-end", so as to increase profits.

Among the 600 million yuan raised by the IPO of Ganbao Pet, 367 million yuan was used for the construction of new high-end staple food, high-end snacks and health care products production lines; In September 2023, Ganbao Pet will spend another 560 million yuan for the construction of high-end pet food projects.

Judging from the trend of profit margin changes of Ganbao pets, it is indeed effective. In the first three quarters of 2024, the gross profit margin of Ganbao Pet reached 41.98%, compared with 28.88% in 2019, and the net profit margin also increased from 0.30% to 12.85% during the same period.

However, the road to the high-end of Ganbao Pet's brand still relies on the old routine of "smashing marketing", and the cost of customer acquisition is rising.

In the first three quarters of 2024, Ganbao Pet's sales expenses increased by 40.30% year-on-year to 695 million yuan, which was higher than the revenue growth rate of 17.96% in the same period and higher than the net profit scale of 470 million yuan in the same period.

In contrast, Ganbao Pet is relatively weak in R&D investment, and the perennial R&D expenditure does not exceed 80 million yuan. In the first three quarters of 2024, the company's R&D expenses increased by 7.78% year-on-year to 59.9754 million yuan.

The development model of "heavy marketing, light research and development" is also one of the main reasons why it continues to be criticized by the outside world when it is caught in a food safety turmoil. On the Black Cat Complaint [Download Black Cat Complaint Client] platform, there are many complaints about the brands of Ganbao Pet that cause safety problems such as vomiting, acute kidney failure, and stomach bleeding when eating pet food, and are pulled into the blacklist by some evaluation bloggers from time to time.

　　03

How to get into the second half?

Behind the high-end trend of pet food brands, in fact, pet consumption is increasingly pursuing the status quo of "fine feeding".

On social platforms, many pet owners will record daily pet meals, meat and vegetarian seafood for a meal, as well as nutritional supplements. Netizens jokingly called "why can't you be poor hairy children". According to the "Xiaohongshu 2024 Pet Industry Insight Report", nearly 3 percent of pet owners spend more than 2,000 yuan per month for pets.

It can be found that pet food consumption is changing from blindly pursuing the type of ingredients contained in the product to paying more attention to the scientific ingredient ratio. In order to meet the consumer demand for more refinement and efficacy, the brand has also begun to formulate fancy rolls.

Such as Bloomage Biotech (688363. SH), its pet brand "Hypergas" and Sinoagri Warwick's "Muggle" launched China's first hyaluronic acid formula of high-protein full-price food, which is claimed to reduce the incidence of pet bone and joint diseases and increase the water content in pet skin and hair.

Some have even developed in a more subdivided niche direction, such as the pet brand TAFFEE Taifei launched pet milk tea, pet beer, pet seasoning and other subdivisions.

However, it is difficult to form strong technical barriers in the pet food track, and the innovation competition between various brands is mostly a gimmick, and more of a competition in terms of nutritional ingredients and food types.

Looking back at Ganbao Pet, we choose to achieve refined development by creating a multi-brand matrix. In November 2024, Ganbao Pet will set up three new pet food industry companies in Shanghai, namely Pet Yangdao, Kimberly-Clark and Zaoqu, all of which are Du Shifang, the president of Ganbao Pet, which is regarded by the outside world as Ganbao is preparing for the launch of a new brand.

It's just that Ganbao Pet still lacks an absolute moat competitive advantage, which can be explored from the company's performance in the secondary market, which has always been difficult to boost.

In August 2023, Ganbao Pet landed on the Shenzhen Stock Exchange, setting a new record for the market value of A-share pet economic companies on the first day of listing.

In February 2024, because the closing price was lower than the company's issue price of 39.99 yuan per share, the performance conditions of the relevant commitments were triggered, and the company's controlling shareholders, actual controllers and their persons acting in concert and other relevant shareholders extended the share lock-up period to February 2027.

So in August 2024, when some of the initial restricted shares of Ganbao Pet ushered in the lifting of the ban, the company's shareholders began to move, and two months later, Gangao Pet ushered in the first wave of lifting the ban.

In October 2024, Ganbao Pet announced that KKR, the company's second shareholder, plans to reduce its stake in the company by no more than 2.00% within three months after 15 trading days from the date of the disclosure announcement. At the same time, the third shareholder, Beijing Junlian, and Zhuhai Junlian, who acted in concert, planned to reduce their holdings of Ganbao Pet by no more than 2.00% within the same period of time. If estimated according to the closing price on the announcement date, the cumulative value of KKR, Beijing Junlian and Zhuhai Junlian is about 1.059 billion yuan.

It is understood that the shareholders of this reduction have played an important role in the development of Ganbao Pet.

Ganbao Pet went through several rounds of financing before the IPO, including 400 million yuan in Series A financing from KKR in 2017, and Beijing Junlian, Zhuhai Junlian and Fuzhou Xingrui in 2019. After the completion of the reduction, KKR's shareholding ratio will be reduced to 17.08%, and the combined shareholding ratio of Beijing Legend and Zhuhai Legend will be reduced to 11.34%.

As of November 26, 2024, Ganbao Pet closed at 62.43 yuan per share, with a total market value of 25 billion yuan, and its share price fell by about 3% from the first day of listing.