Reporter: Huang Hai Editor: Wen Duo
"During the reporting period, the company's main business income showed a large difference in the changes in the domestic and foreign markets. In the 2023 annual report, Petty shares (SZ300673, share price 14.26 yuan, market value 3.614 billion yuan) summarized with such a sentence when analyzing the main business income.
This pretty much represents the general feeling of pet companies.
Affected by factors such as the destocking cycle of overseas large customers and foreign exchange gains and losses, most of the overseas businesses of pet products companies will be under pressure in the first half of 2023. The 2023 semi-annual report shows that the profit attributable to the parent of many companies in the A-share industry has declined significantly.
In the autumn of 2023, the process of overseas destocking is coming to an end, and as large customer orders begin to recover, the overseas business of various pet products companies has re-emerged as the pillar of their revenue. However, the dismal first half of the year has become a fact, so throughout the year, it is difficult to say that the overseas business of pet products companies will be smooth.
In contrast, the domestic pet food track grew steadily throughout the year. The leading pet food enterprises dominated by Zhongpet shares (SZ002891, share price of 25.18 yuan, market value of 7.406 billion yuan) and Ganbao shares (SZ301498, stock price of 53.80 yuan, market value of 21.520 billion yuan) maintained a high growth rate. Petty shares and Tianyuan Pet (SZ301335, share price 19.35 yuan, market value 2.438 billion yuan) also entered the game to launch their own brands to create a second curve.
The influx of giants and the competition in the industry. In the pet track, the story of entering and exiting the game is constantly staged.
Image source: Photo by reporter Zhang Jian (data map)
Overseas business is volatile
The pet industry in 2023 will start from the "hard mode" of overseas pressure.
In the first half of last year, the performance of a number of A-share pet products listed companies fluctuated. Among them, listed companies with a high degree of dependence on overseas business, such as Tianyuan Pet and Petty Shares, have experienced varying degrees of profit decline, and Petty shares have even suffered losses.
Taking Petty shares as an example, in the first half of 2023, the company will have a total loss of about 42.6973 million yuan, and although it will be profitable in the last two quarters, it will still end in a loss for the whole year.
According to the financial report, in 2023, Petit will achieve operating income of 1.411 billion yuan, a year-on-year decrease of 18.51%, a net profit loss of 11.09 million yuan attributable to the parent company, a year-on-year loss, and a net profit loss of 6.85 million yuan after deducting non-profit, a year-on-year loss.
Looking at Tianyuan Pet, the 2023 annual report shows that the company achieved revenue of 2.037 billion yuan, a year-on-year increase of 7.96%, a net profit attributable to the parent company of 76.77 million yuan, a year-on-year decrease of 40.33%, and a net profit attributable to the parent company after deducting non-recurring profits and losses decreased by 49.03% year-on-year, almost halved.
Looking back at the development of overseas business in the past two years, many companies have mentioned similar views in their financial reports: from 2022, due to the impact of inflation in overseas markets and the disruption of the international supply chain, the inventory of overseas pet channels has continued to rise, and the export OEM business of domestic pet companies has generally been under pressure. With the destocking of overseas channels coming to an end, the export business is expected to gradually return to normal in 2024.
Compared with the dismal foreign business, in 2023, the domestic performance of major pet companies has achieved certain growth. And judging from the data, the larger the scale of the domestic business, the more growth it has achieved.
In 2023, Petty's domestic revenue will increase by 26.95% year-on-year, and the domestic revenue of Zhongpet will increase by 20.40% year-on-year. According to the annual report, the domestic revenue of the above three companies accounted for 24.77%, 28.97% and 66.17% respectively.
Although most of the companies in the industry are affected by overseas business, due to the different emphasis of the company's main business, the impact on each company is also different.
From the perspective of the subdivision track, Tianyuan Pet is the leading enterprise of domestic cat climbing frame and other products, and Petty shares are the global pet chewing glue leader, both of which focus on pet products.
Under the destocking cycle, the pet products market is sluggish, which directly affects the performance of the corresponding companies. But at the same time, pet food, as a rigid demand, still maintains growth.
According to the financial report, Zhongpet Co., Ltd. will achieve revenue of 3.747 billion yuan in 2023, a year-on-year increase of 15.37%, and the net profit attributable to the parent company will be 232 million yuan, a year-on-year increase of 120.1%. In the first quarter of this year, the company achieved operating income of 878 million yuan, a year-on-year increase of 24.42%, and net profit attributable to the parent company of 56.2243 million yuan, a year-on-year increase of 259%.
In 2023, Ganbao Pet will achieve an operating income of about 4.327 billion yuan, a year-on-year increase of 27.36%, and a net profit attributable to the parent company of 429 million yuan, a year-on-year increase of 60.68%. In the first quarter of 2024, Ganbao Pet continued its growth momentum, with the company achieving operating income of 1.097 billion yuan, a year-on-year increase of 21.33%, and a net profit attributable to the parent company of 148 million yuan, a year-on-year increase of 74.49%.
When it comes to the business plan for 2024, Tianyuan Pet and Petty have expressed their intention to make efforts to the pet food track in the performance briefing and annual report.
An arms race is underway around pet food.
Image source: Photo by reporter Zhang Jian (data map)
The Matthew Effect
According to Frost & Sullivan data, the size of China's pet food market in 2022 will be 113.6 billion yuan, and it is expected that by 2026, the market size is expected to increase to 192.2 billion yuan, with an average annual growth rate of about 14.0% from 2022 to 2026.
Compared with foreign countries, at present, the pet industry in mainland China is still in its infancy. According to the American Pet Products Association, the market size of pet food in mainland China is only 27.93% of that of the United States, but the number of pets has surpassed that of the United States.
According to the "2023-2024 China Pet Industry White Paper", the number of urban dogs and cats in mainland China in 2023 will be 122 million, including 51.75 million dogs and 69.8 million cats. During the same period, there were about 65.1 million pet dogs and 46.5 million cats in the United States.
Image source: Screenshot of the annual report of China Pet Co., Ltd
The huge number of pets held constitutes the future growth space of the industry. Due to the low brand concentration of the pet industry in the mainland, there is also a lot of opportunity space for enterprises. A set of data given by Ganbao Pet at the performance briefing shows that the pet industry brand with the highest market share can reach 5% to 6% of the market share.
The considerable market size and the lack of concentration in the market pattern have attracted major domestic pet food manufacturers to increase their weight. At the same time, due to the low entry threshold of the domestic pet food industry, in recent years, many pet food processing enterprises have been added to the domestic market.
The "IT Expo" held in Shanghai in the first half of each year can be regarded as a barometer of the domestic pet industry. This year's edition attracted more than 800 exhibitors, compared to 792 in the same period last year. Large and small businesses poured into the pet track,
According to a previous report by the Daily Economic News, with the intensification of competition in the pet industry, in 2023, all links in the pet industry will be "rolled" in the price, from large enterprises to small individuals.
Under the Matthew effect, the performance of leading companies can often maintain good growth. But for non-leading brands, the competitive pressure in the pet food industry is not small.
Taking Tianyuan Pet, which mainly distributes foreign brands, as an example, in 2023, the gross profit margin related to the company's pet food has dropped to 8.79%, a year-on-year decrease of 5.96 percentage points. In contrast, the gross profit margin of Ganbao Pet and Zhongpet, which are mainly engaged in pet food, reached 36.83% and 27.03% respectively. Petit shares, which has just entered the pet food track in the past two years, has a gross profit margin of around 19% for its pet food-related business.
In the first quarter of 2024, Tian Yuan Pet achieved revenue of about 504 million yuan, an increase of 17.9% year-on-year, and a net profit attributable to the parent company of about 13.97 million yuan, an increase of only 2.8% year-on-year.
At present, with the gradual expansion of the production scale of domestic enterprises and the continuous transfer of foreign funds, the market competition faced by enterprises will be further intensified. In the financial report, the pet shares said that the intensification of market competition will cause the growth of sales expenses such as brand promotion and event promotion, and may have a certain adverse impact on the gross profit margin level of the industry.
Image source: Daily Economic News data map
Staking the land
In the view of Shanxi Securities, the "price war" is the inevitable result of full competition in the whole industry chain of the pet food industry.
"Pet food is currently in the stage of fierce price war, and every domestic pet food player is in the development stage of 'seeking growth', 'making explosive models' and 'building brands'. Shanxi Securities said in the latest research report that this has brought a full range of competition in products and marketing.
Further dismantling the current industry pattern can find that the ecology of production, brand and channel is forcing the industry to carry out a "price war".
On the production side, Shanxi Securities believes that the current number of pet food foundries can reflect the full competition of domestic pet food, and low-end overcapacity leads to low-end products that need to be promoted through discounts. On the brand side, it is difficult to differentiate the products of the pet food industry, and the marketing style and explosive strategy are basically the same.
On the channel side, affected by consumers' shopping habits, most domestic pet foods rely on e-commerce platforms for brand building. Because the e-commerce platform has the natural advantage of being conducive to price comparison, and the current e-commerce platform is committed to promoting "strong subsidies" and "low prices on the whole network" to achieve drainage, which indirectly promotes the industry to enter the "price war".
Image source: Screenshot of Shanxi Securities Research Report
However, in the view of Zhongpet shares, the current competitive landscape has been relatively slowed down. On the afternoon of April 29, the reporter asked questions to Zhongpet shares as an investor, and the other party said: "The pet industry in the past two years is not as competitive as in 2022, because there are many brands that have been cleared. ”
Compared with small and medium-sized enterprises struggling on the edge of the profit and loss line, the eyes of leading enterprises are often focused on two key areas - one is branding, and the other is market share.
In April this year, in an institutional survey, the management of Ganbao Pet bluntly said that the company's first goal is to increase market share. "The strategy of private label in recent years is still to expand market share and increase market share as the first goal, and will not pay special attention to profits. ”
Although all parties are pursuing market share, but at the actual business level, in order to avoid the negative impact of the "price war" as much as possible, Zhongpet shares, Petty shares and other companies are beginning to control prices.
On the afternoon of April 29, the reporter learned from a person close to Zhongpet shares that the company was controlling prices last year and did not carry out great promotional activities. Coincidentally, the reporter learned from Petty shares as an investor that in order to control prices, the company adjusted the original offline channel providers.
"If we don't control the price, the total price obtained by multiplying the price by the sales volume is actually similar to the control price (the total price after that). After the price control, the total revenue will even rise, which is a positive cycle for us. Petty added.
Shanxi Securities gave a similar judgment, "We believe that the domestic price war is a phased competition mode formed by pet food brands in a specific period to seize market share, and the price war has disrupted the past pet food price system, but it will also be a process of gradual establishment of a new price band in the industry." ”
The process of establishing a new price band in the industry is often accompanied by an increase in industry concentration. But no one can give an accurate answer as to how long the process of staking the top brands will last.
"Now the primary market (issuance market) is not very good, for the brand, in fact, there is still a need for a certain amount of funds to support...
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