East Sea Securities: "Double 11" pet food performs well, leading companies continue to be strong.

Donghai Securities released a research report stating that product high-end and differentiation are the industry development trends. Pet food companies that occupy a first-mover advantage and have economies of scale are expected to directly benefit. In recent years, the number of pets in China has continued to grow and pet consumption has shown high-quality development. In terms of exports, overseas destocking has ended, and China's pet food exports have maintained rapid growth year-on-year. Domestically, pet food sales data during "Double 11" were impressive, and the industry continues to maintain rapid growth. With the promotion of domestic pet food substitution, domestic pet food brands have welcomed development opportunities. The main points of Donghai Securities are as follows: Pet food category achieves excellent results on "Double 11". As of November 13, 2024, various e-commerce platforms have successively released the performance of the pet category on "Double 11". According to Xingtu data, the total online sales of pet food on "Double 11" in 2024 reached 5.9 billion yuan, an increase of 22.92% year-on-year. According to reports from various platforms, on Tmall, 9 pet brands achieved sales of over one billion yuan during this year's "Double 11", and 1340 pet brands doubled their sales year-on-year. Pet food category achieved excellent results on "Double 11", leading in year-on-year growth rate. On JD, during the full cycle of "Double 11", the number of million-unit pet products increased by over 37% year-on-year, and the number of stores doubled, with the turnover of the pet business on the opening day of "Double 11" on October 14 increasing by over 2.1 times year-on-year. During "Double 11," online sales in the pet category saw comprehensive growth, with each brand showing impressive growth rates. Baking food remains popular, and functional food gains consumer favor. Baked cat food locks in nutrients through low-temperature baking, with high meat content meeting cats' natural dietary needs. The crisp and digestible pellets are low in oil and salt, contributing to health, which has attracted a large number of consumers in China. Data from e-commerce platforms show that the popularity of baked food remains unabated. JD's full cycle data on "Double 11" showed a 147% year-on-year increase in sales of baked cat food, maintaining a high growth trend. With the trend of pet feeding becoming healthier and more refined, various functional foods have also begun to gain popularity. According to JD's full-cycle data on "Double 11," sales of urinary function cat food increased by 137% year-on-year, weight control low-fat cat food by 326%, and functional cat snacks by 287%. Consumers are increasingly concerned about pets' health, with urinary function issues and obesity becoming the most common health problems for pets. Therefore, segmented functional foods are expected to open up new paths and differentiate themselves in the competition of regular staple foods. At the same time, with the growth of older dogs, pet foods suitable for older dogs are favored by consumers, making the elderly pet market a new blue ocean. We believe that in the future, staple food categories that are healthy, convenient to feed, and lightly processed will continue to be favored by consumers. Strong domestic leaders with fierce competition. Reviewing the rankings of pet food brands and stores on various e-commerce platforms on "Double 11", on Tmall, Gambol Pet Group's Maifudi brand topped three sub-categories, and Flegete topped the cat staple food category. Yantai China Pet Foods' Wapi, Toptrees, and ZEAL ranked fifth in cat snacks and ninth in dog snacks. Petpal Pet Nutrition Technology's Jueyan ranked second in dog snacks. On JD, Gambol Pet Group's Maifudi ranked second in cat staple food and first in other sub-categories. Yantai China Pet Foods' Wapi ranked in the top five for both cat and dog snacks, while ZEAL ranked fourth in dog snacks. Petpal Pet Nutrition Technology's Jueyan ranked second in dog snacks. Strong brands continue to excel. According to the data released by various brands, Gambol Pet Group's own brand achieved a total online sales of over 670 million yuan, a year-on-year increase of 65%, with Flegete's total online sales exceeding 200 million yuan, a year-on-year increase of 190%. Maifudi's barf series surpassed 79 million yuan, a year-on-year increase of 150%, the lamb-meat series exceeded 20 million yuan, and the double-mixed grain series exceeded 35 million yuan. Jueyan, under Petpal Pet Nutrition Technology, achieved a total online sales of over 42.5 million yuan, a year-on-year increase of over 70% from last year's "Double 11". In September 2024, the export volume and export value of pet food continued to grow year-on-year. In September 2024, China's pet food export volume was 25,600 tons, an increase of 5.47% year-on-year, and the export value was 124 million US dollars, an increase of 11.04% year-on-year. The export volume and export value of pet food have maintained rapid growth year-on-year this year, with September maintaining year-on-year growth under the influence of the low base last year. With the end of overseas destocking, China's pet food exports are steadily increasing. Investment advice It is recommended to pay attention to Gambol Pet Group (31498.SZ), Yantai China Pet Foods (002891.SZ), and Petpal Pet Nutrition Technology (300673.SZ). Risk warning: risks of fluctuating raw material prices, pet food safety, and ineffective promotion of own brand.