CICC: There is a large growth space in pet medical care, focusing on the leading chain pet hospitals.

CICC releases research report stating that in mature pet economy markets, pet medical care is a high-quality track with a large profit margin. As pet ownership in China increases and the pet economy gradually matures, with the rise of rigid medical expenses and expanding optional medical expenses, the number of pet hospitals and per capita medical consumption is expected to grow rapidly. Leading chains are expected to drive optimization in the industry and lead the second wave of the pet economy, following the surge in pet food consumption. Key points from CICC include: Industry: Increasing number of hospitals and rising per capita consumption indicate a promising future for pet medical care. 1) Market Size: The market size of China's pet medical care and services industry is estimated to be 106.2 billion yuan in 2022, with a 17.7% compound annual growth rate (CAGR) from 2015 to 2022. Pet medical care shows exceptional growth potential in mature pet economy markets. 2) Profitability: In 2023, over 80% of pet hospitals in China have revenues below 2.4 million yuan, and nearly 75% of pet hospitals are profitable. Comparatively, the United States and Japan have higher consultation numbers, average spending per pet, and profit margins at individual stores. The U.S. pet medical care business model is superior, with higher profitability compared to pet food and supplies. The estimated profit scale of the U.S. pet medical care industry is 1.2 times that of pet food. 3) Drivers: - There is room for expansion in the number of pet hospitals in China. In 2023, each pet hospital in China serves an average of 6,862 pets, compared to 5,485 and 1,252 pets in the United States and Japan, respectively. - The aging pet population supports demand for rigid medical services, and evolving pet ownership concepts are driving the growth of optional medical services. There is still considerable room for growth in individual pet medical expenses in China. In 2023, the average medical expenses per pet in Japan and the United States were 1,260 and 1,513 yuan respectively, about 2.9 and 3.4 times that of China. Industry Landscape: Low concentration and chainization rates, with barriers in the supply chain, talent, and technology shaping the industry landscape. 1) Current Situation: In 2022, only 21% of large chains in China operate more than five pet hospitals, compared to chainization rates of around 35% to 37% in the United States and Japan. The CR10 of the pet industry in China and the United States are 17.6% and 33.1% respectively, with market share of 9.4% and 19.8% for leading enterprises, highlighting the need for optimizing the competitive landscape. 2) Competition Factors: - Supply Chain: Leading pet medical care chains have built their own supply chain systems to support their network expansion and reduce procurement costs. - Talent: In China, on average each pet veterinarian serves 3,577 pets, which is 1.5 to 3.7 times that of the United States and Japan, indicating a significant talent gap. Top pet hospitals have more comprehensive training systems and attractive salary incentives, positioning them to attract top industry talent. - Technology: Leading pet hospital chains have a more comprehensive specialty system, advanced medical equipment, and sophisticated experimental diagnostics, and forward-looking smart medical layouts. Risk Factors: Reputation risk, intensified competition in the domestic market, and risk of talent outflow.