Summary of Petty Co. Conference Call Company Overview - **Company**: Petty Co. - **Industry**: Pet Food Industry Key Points Financial Performance and Market Outlook - In 2025, overseas revenue declined by over 10% due to U.S. tariffs and procurement strategies, but gross margin improved against the trend [2][3] - Orders began to recover in Q4 2025, with expectations for single-digit growth in the U.S. market and greater potential in Europe for 2026 [2][3] - The company managed to stabilize gross margins despite a revenue decline, maintaining profitability similar to 2024 [3][4] Tariff and Currency Management - Tariff rates for the Vietnam factory were temporarily reduced to 5% for 150 days, while Cambodia's rate remained at 19% [2][4] - The company employs a strategy to manage USD positions within a 6.8-7.2 exchange rate range to mitigate RMB appreciation pressure [2][4] Cost Structure and Product Strategy - Chicken prices are expected to rise in 2026, but the company plans to buffer Q1 pressure with low-cost inventory from 2025 [2][6] - The high proportion of rawhide in the cost structure provides stability compared to peers, with plans to adjust product mix to address cost fluctuations [2][6] Domestic Market Growth - The domestic brand target growth for 2026 is over 30%, focusing on staple food categories [2][7] - The "Jueyan" brand contributes 70-80% of revenue, with an online direct sales gross margin of 40-50%, aiming to exceed 1 billion RMB in scale over the next three years [2][7][10] New Zealand Operations - The New Zealand staple food factory is a core source of performance elasticity, with expected losses narrowing to 40-50 million RMB after export restrictions are lifted in 2026 [2][13] - A capacity utilization rate of 40% is needed for breakeven, with full capacity potentially contributing 160-170 million RMB in net profit [2][13] M&A and Product Line Expansion - The company is focusing on M&A to fill product line gaps, particularly in staple foods and cat products, with Southeast Asia as a primary market for brand expansion [2][3][11] - Plans to introduce new staple products, including freeze-dried options, are underway, leveraging existing production capabilities [2][8][11] R&D and Product Development - R&D efforts are concentrated on pet snacks, with collaborations for staple food development due to a later market entry [2][12] - The company plans to increase R&D investment, particularly in new product lines like baked and freeze-dried foods [2][12] Competitive Landscape - The domestic pet food market is seeing increasing concentration, with a stable head brand landscape but significant internal ranking changes [2][14] - High-quality, differentiated products and unique supply chains are key competitive advantages, with a focus on maintaining product quality amid rising online marketing costs [2][14] Future Projections - The company aims for a 30% revenue growth in domestic brands for 2026, with a focus on maintaining gross margins and reducing losses in the staple food segment [2][10][11] - The overall strategy includes continuous monitoring of market dynamics and potential acquisition opportunities, especially for brands lacking production capabilities [2][14]