The outbreak of the epidemic has heated up the pet economy, and many companies such as Tianyuan pet and Fubei pet have started listing one after another. However, adverse factors such as fluctuations in raw materials, exchange gains and losses and the impact of the epidemic also continued to put pressure on the industry. The financial Associated Press reporter noted that as industry companies have shifted to the Chinese market, the competition will become increasingly fierce. At the same time, it is difficult to reverse the export orientation in the short term, and profits are facing multiple challenges.
With regard to the cost pressure of pet food, especially staple food raw materials in 2022, Wang Jinquan, an expert of the Chinese Academy of Agricultural Sciences, told the financial associated press that in general, animal protein, the main raw material, has the ability to act. Factors such as the uncertainty of the international situation, global inflation expectations, strong demand in China and intensified industry competition may lead to price increases, “The current price is expected to be maintained until April. After that, the demand for animal protein in the aquaculture industry will increase and the upward momentum will be enhanced. However, if the supply of white feather broilers in the aquaculture industry increases, it may also lead to a phased decline in the price.”
For listed companies, Yantai China Pet Foods Co.Ltd(002891) (002891. SZ) and Petpal Pet Nutrition Technology Co.Ltd(300673) (300673. SZ) are mainly non staple food with chicken as raw material. The market generally takes the price of white feather chicken as its cost reference and believes that there is less pressure on raw materials this year. The financial Associated Press reporter called Yantai China Pet Foods Co.Ltd(002891) as an investor and learned that the company judged that it was difficult for the price of chicken to increase significantly. In order to deal with the adverse situation, it has also made strategic reserves. However, it should be noted that as the two companies have launched the main grain business one after another, the raw materials are more diverse, and their cost changes may need to be reassessed.
Price trend of Chinese white feather chicken, source: Zhuo Chuang information
the layout of China’s staple grain market becomes a trend
At present, A-share pet food companies mainly include Yantai China Pet Foods Co.Ltd(002891) , Petpal Pet Nutrition Technology Co.Ltd(300673) . In addition, Three Squirrels Inc(300783) (300783. SZ), Guangdong Haid Group Co.Limited(002311) (002311. SZ), New Hope Liuhe Co.Ltd(000876) group and Tongwei group also have layout.
Due to the differences in the development stages of the global market, a number of leading companies in China in the early stage mainly relied on the European and American markets, and most of their products were snacks, health products and toys. The main grain of the industry’s core product has always been occupied by international manufacturers. According to Euromonitor statistics, the Cr5 of the international main grain market reached more than 53%.
With the increasingly vigorous pet market in China, it has become a common choice for industry manufacturers to convert exports to domestic sales and non staple food to staple food.
Wang Jinquan introduced that there are certain historical factors in the conversion of exports to domestic sales. The quality of Chinese animal protein products has been questioned by overseas customers. In this case, a number of manufacturers have strengthened their determination to convert to domestic sales. As for the shift to staple food products, it is mainly because staple food accounts for the highest proportion in industry consumption. According to the white paper on China’s pet industry in 2020, the consumption market scale of urban pets (dogs and cats) in China will reach 206.5 billion yuan in 2020, accounting for 54.70% of the consumption expenditure of pet food, ranking the first. Among them, the main grain is the core, the corresponding market scale is 81.361 billion yuan, and the proportion of snacks and nutrients is relatively low.
In order to achieve market and product switching, zhongchong and Patty both chose to layout overseas production bases to counter attack the Chinese market with high-end staple food products. In 2021, Yantai China Pet Foods Co.Ltd(002891) successively acquired 70% equity of pfnz company in New Zealand and 50% equity of Hangzhou, a leading Chinese pet food manufacturer. Petpal Pet Nutrition Technology Co.Ltd(300673) with the help of a new round of convertible bonds, a pet food project with an annual output of 80000 tons will be invested and built in New Zealand. It is reported that the layout of New Zealand is mainly due to the cost of raw materials. New Zealand is rich in mutton, venison and dairy products.
At this stage, the Chinese business of the two companies is still in the development stage. From 2019 to the first half of 2021, Yantai China Pet Foods Co.Ltd(002891) China’s revenue accounted for 19.25%, 23.76% and 24.87% respectively. In the first half of 2020, Petpal Pet Nutrition Technology Co.Ltd(300673) China’s revenue accounted for 16.01%.
industry profitability faces multiple challenges
Looking back on the cost changes of pet food in 2021, Wang Jinquan said that in the first half of the year, the costs of PET staple food industry increased, among which the price of animal protein raw materials represented by chicken powder increased for more than two consecutive times. However, under the pressure of competition, manufacturers generally chose internal digestion and began to raise prices one after another in the third quarter. Overall, the cost pressure has eased, but it is not optimistic whether it can be fully transferred. In this context, he believes that animal protein, the main raw material, will still have the power of action in 2022.
In terms of the company’s performance, Petpal Pet Nutrition Technology Co.Ltd(300673) 2021 performance forecast reflects that potential risks can not be ignored. Its annual net profit is 60 million yuan – 90 million yuan, a year-on-year decrease of more than 21.62%. In fact, Petpal Pet Nutrition Technology Co.Ltd(300673) performance showed a typical trend of high opening and low going. It performed well in the first half of the year. In the third quarter, it decreased significantly due to the shutdown of factories in Vietnam. In addition, the company said that the capacity climb of Cambodia project and exchange gains and losses also had an adverse impact on the annual profit. Yantai China Pet Foods Co.Ltd(002891) performance is relatively stable, but after the high growth in the first half of 2021, Q3’s net profit also declined due to the impact of consumption expenses and raw material costs.
Petpal Pet Nutrition Technology Co.Ltd(300673) said in the announcement that the company will continue to face raw material cost pressure from 2019 to 2020. Yantai China Pet Foods Co.Ltd(002891) according to the recent research summary, chicken is mainly used for pet snack products for export. The company believes that with the gradual increase of the sales proportion of PET staple food in China, the impact of chicken price fluctuation on performance will be reduced.
It should be noted that the impact of single chicken is expected to weaken with Patty and zhongchong becoming the main food, but the overall cost pressure is still not optimistic. The cost advantage brought by the layout of New Zealand and the brand premium brought by high-end positioning remain to be seen. In addition, overseas distribution also faces certain epidemic risk. The shutdown of the factory in Vietnam is proof.
China’s pet industry started relatively late, and there is still a lack of case reference on the layout and overseas prospects. It is generally believed that the typical feature of pet food is the separation of buyers and users, which is closer to the infant powder in dairy products. Song Liang, a dairy industry expert, told the associated press that in the past, Chinese dairy enterprises had a high success rate of acquiring overseas brands and switching to the Chinese market, which could reach more than 80%.
