Wang Cong, agriculture, forestry, animal husbandry and fishery analyst of Tianfeng Securities: The potential scale of China's pet market is about 800 billion yuan

Per reporter: Zeng Jian Per editor: Zhang Haini

Wang Cong, an analyst of agriculture, forestry, animal husbandry and fishery at Tianfeng Securities. Image source: Photo by reporter Zeng Jian

On October 22, the 3rd China Pet Industry High-quality Development Forum 2021 was held in Chengdu, and Wang Cong, an analyst at Tianfeng Securities Agriculture, Forestry, Animal Husbandry and Fishery, made a keynote speech at the meeting. He said that China's pet economy is still in its infancy, and the core driving force of growth is that young people have become the main force of pet breeding, and pet breeding will continue for the younger generation for a lifetime.

Wang Cong pointed out that the size of the pet market = the number of households× the average number of pets per household × the amount of a single consumption. According to this formula, housing conditions are the "ceiling" that determines the number of pets. If the average consumption is benchmarked against the United States (4,000 yuan), the average number of pets per household is benchmarked against Japan (0.4 per household), calculated according to 500 million households (which will continue to grow in the future), then the potential size of China's pet market is about 800 billion yuan.

According to the "2021 China Pet Consumption Trend White Paper" released by iResearch, the market size of China's pet industry in 2020 is close to 300 billion yuan, driven by policy, economic, social and technical factors, as well as more potential pet owners and emotional consumption brought about by the epidemic, it is expected that the pet industry will continue to maintain steady growth in the next three years, with a compound growth rate of 14.2%, and the industry size will reach 445.6 billion yuan by 2023. Judging from this data, the potential size of the market of 800 billion yuan does not seem to be out of reach.

In view of the development trend of the pet market, especially the pet food market, Wang Cong also interpreted it. He pointed out that the current pet food market continues to grow rapidly: on the one hand, the number of pets is growing rapidly and is still not saturated; on the other hand, the penetration rate of pet food is continuing to increase. In addition, after entering the mature period, the trend of high-end will also promote the rapid growth of pet food.

Wang Cong believes that category innovation is the eternal theme of the development of the pet food industry. Under the trend of pet humanization, pet food function upgrades and demand segmentation have gradually become the mainstream trend of product research and development. Under this trend, the boundaries of pet food are constantly being broken, resulting in new integrations, which will give birth to more and more new categories. In his view, the "cat economy" boom has been formed, more in line with the cat diet nature of wet food has a greater growth potential, he expects that in the future of the domestic pet food industry, dry food, wet food, snacks accounted for 50%, 35% and 15% respectively.

"The share of leading domestic companies may reach 10% to 15%." Wang Cong said. He pointed out that China's pet food market competition is fierce, and the head is mainly occupied by international brands, but domestic companies are accelerating to catch up. At present, the volume of domestic pet food companies is generally small, the market share is relatively low, there is still a lot of room for improvement, it is expected that the future of China's pet food industry pattern will also show a similar situation with Japan and South Korea, the market share of local leading enterprises is expected to reach 10% to 15%.

Up to now, A shares have two typical pet concept targets - Zhongpet shares (002891, SZ) and Petty shares (300673, SZ). Since the listing, the average valuation of Zhongpet shares is 65 times PE, and the average valuation of Petty shares is 53 times PE, why can the two stocks get the favor of the market?

Wang Cong believes that high growth is the root of the premium. China's pet economy is booming, the pet economy as a "emotional consumption" to resist economic fluctuations are strong, and China's pet industry is still in its infancy, the industry concentration is low, with the continuous development of the domestic pet economy, local pet giants are expected to be born. The above background superimposes that there are fewer A-share pet concept targets, and the capital gives the scarcity premium of the pet shares and Petty shares. At the same time, the foundry era ends, the brand era arrives, and the capital market gives domestic brand building companies a brand premium.

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