Summary of the Pet Medical Industry Conference Call Industry Overview - The pet market in China is expanding, with the urban dog and cat consumption market expected to exceed 300 billion yuan in 2024, with an average annual spending of over 2,000 yuan per pet driven by demographic changes, single economy, aging population, and consumption upgrades [1][2] Key Drivers of Pet Medical Market - The pet medical market is primarily driven by: - Aging pets, with 27% of dogs and 18% of cats over 6 years old, incurring annual medical costs of 2,400 yuan, double that of younger pets [3][4] - Expansion of disease spectrum requiring more specialized treatments [4] - Increased awareness of preventive medicine, with a significant rise in vaccine and deworming product consumption [4] Growth of Pet Hospitals - The number of pet hospitals in China has significantly increased from 13,000 in 2014 to 34,000 in 2024, with a slowdown in growth rate observed in recent years [5] - The expansion is more pronounced in lower-tier cities, with first-tier cities showing a 12% growth rate, while new first-tier, second-tier, and third-tier cities have growth rates of 17% and over 20% respectively [5][7] - The chain rate of pet hospitals has increased from 5% in 2017 to 25% in 2024 [5] Competitive Landscape - The market share of leading chain veterinary hospitals remains low, with the top three brands (New Ruipeng, Ruipai, and New Rui Rui Chen) holding only 7% of the market [6] - Increased competition has led these top institutions to enhance their customer acquisition capabilities [6] Current Challenges in the Industry - Overall customer spending per visit has slightly decreased, while the profit margin has narrowed, with the loss ratio increasing to 26% [8] - The industry faces significant challenges, including a shortage of qualified veterinary professionals [8] Characteristics of Pet Owners - The pet owner demographic is becoming younger and more professional, with a focus on high-quality care and a willingness to invest in their pets' health [9] - Pet owners are increasingly informed and expect high standards in veterinary services [9] Regulatory and Economic Support - The development of the pet medical industry is supported by policies, capital investment, and a favorable economic environment [10] - The introduction of regulations has improved industry standards and reduced the shortage of veterinary medicines [10] Future Trends - The pet medical market is expected to evolve towards standardization, specialization, digitalization, and localization [11] - Addressing the needs of aging pets and the last-mile issues in lower-tier markets will be crucial for future growth [11] Notable Companies to Watch - Companies with core competencies in preventive medicine and elderly pet care, such as Ruipeng Bio, and those excelling in R&D like Keqian Bio, Laike Bio, and Zhongmu Bio, are recommended for attention [13]

Investment Rating - The industry investment rating is "Positive" [3] Core Viewpoints - The report highlights that the agricultural sector is experiencing a recovery, with specific segments such as the pig and beef industries showing signs of improvement. Cost reduction and efficiency enhancement are key drivers for performance improvement in the pig sector, while the beef sector is witnessing a rebound from a cyclical low [6][7][47]. Summary by Sections 1. Pig Industry - The pig sector has shown significant improvement in performance, with 15 listed pig companies achieving a revenue of 196.98 billion yuan in the first half of 2025, a year-on-year increase of 19%. The net profit attributable to shareholders reached 16.33 billion yuan, up 625% year-on-year [9]. - The average pig price has been under pressure, dropping to a low of 13.96 yuan/kg in June 2025. However, leading companies like Muyuan and Wens continue to maintain high profitability per head due to their efficiency advantages [15][42]. - Recommendations include focusing on low-cost, high-certainty leaders such as Muyuan and Wens, as well as high-growth small pig companies like Shennong Group and Juxing Agriculture [7][43]. 2. Beef Industry - The beef sector is experiencing a cyclical recovery, with live cattle prices increasing significantly since mid-February 2025. As of September 8, 2025, the prices for fattened bulls, calves, and cull cows have risen by 2.39, 8.33, and 3.18 yuan/kg respectively [47]. - The report notes that the overall beef market is supported by a trend towards protein upgrading, which is expected to continue despite economic fluctuations [57]. 3. Animal Health Sector - The animal health sector is stabilizing, with a focus on the development of pet business. The rapid release of pet vaccines is anticipated to enhance valuations across companies [7]. 4. Seed Industry - The seed market is shifting from quantity to quality competition, with a focus on superior varieties as the core competitiveness of seed companies. The report emphasizes the importance of resource integration and mergers in the seed industry [7]. Companies with strong variety reserves, such as Dabeinong and Longping High-Tech, are expected to benefit [7].

Core Viewpoint - The Zhejiang Province is soliciting public opinions on a draft policy aimed at promoting the development of the pet economy, focusing on upgrading the pet food and pharmaceutical industries [1] Group 1: Pet Food Industry - The policy encourages pet food companies to align with consumer trends by developing customized formula foods and functional pet foods tailored to different pet breeds, ages, and health conditions [1] - There is an emphasis on establishing comprehensive standards for pet food and pharmaceuticals, with a goal to elevate group standards to national standards [1] Group 2: Pet Pharmaceuticals - The initiative promotes the development of innovative pet medications by veterinary drug companies, including cost-effective anti-parasitic drugs, vaccines, diagnostic products, therapeutic agents, traditional Chinese medicine, and animal health products [1] - The policy aims to accelerate the domestic substitution process in the pet pharmaceutical sector [1] Group 3: Safety and Standards - The draft includes plans to enhance rapid and precise detection technologies for illegal additives and toxins, improving risk warning and prevention capabilities [1] - Local governments are encouraged to support the research and development of new veterinary drugs [1]

Core Viewpoint - The report highlights the strong performance of the pet segment and the impact of new product launches on the company's revenue growth, leading to an "overweight" rating for the company. Group 1: Financial Performance - In the first half of 2025, the company achieved operating revenue of 559 million yuan, a year-on-year increase of 15.79% [1] - The net profit attributable to shareholders reached 116 million yuan, up 57.12% year-on-year, while the net profit after deducting non-recurring gains and losses was 100 million yuan, reflecting a growth of 50.79% [1] - The net cash flow from operating activities was 195 million yuan, showing a significant increase of 305.09% year-on-year [1] - In Q2 2025, the company reported operating revenue of 281 million yuan, a year-on-year increase of 13.38%, and a net profit of 63 million yuan, up 35.67% year-on-year [1] Group 2: Product Performance - Revenue from various product segments in H1 2025 included: - Pig vaccines: 131 million yuan, down 11.49% year-on-year - Poultry vaccines and antibodies: 259 million yuan, up 30.01% year-on-year - Ruminant vaccines: 1.68 million yuan, up 39.62% year-on-year - Pet vaccines: 10.07 million yuan, up 49.65% year-on-year - Chemical drugs: 124 million yuan, up 20.94% year-on-year - Pet chemical drugs: 8.37 million yuan, up 9.99% year-on-year - Pet health products: 128.14 million yuan, up 124.47% year-on-year [2] - The new production base in Nanjing has been fully operational, leading to a nearly 60% increase in sales revenue from high-pathogenic avian influenza vaccines [2] - The company continues to implement a dual-channel marketing strategy for pet products, with online sales increasing by over three times [2] Group 3: Cost Control and R&D - The company's gross margin was 59.76%, a decrease of 3.42 percentage points year-on-year, while the net profit margin was 20.77%, down 5.47 percentage points year-on-year [3] - The company received 8 new veterinary drug registration certificates and 4 invention patent authorizations in H1 2025, indicating strong R&D capabilities [3] - Despite the decrease in margins, the company maintained a high level of R&D investment while enhancing cost control through economies of scale [3] Group 4: Future Outlook and Valuation - The company maintains a profit forecast of 178 million yuan, 197 million yuan, and 232 million yuan for 2025, 2026, and 2027 respectively, with corresponding EPS of 0.52, 0.57, and 0.67 yuan [3] - The current stock price corresponds to PE ratios of 28.70, 26.02, and 22.04 for the next three years, indicating a reasonable valuation range compared to peer companies [3] - The company's leading R&D innovation capabilities suggest potential for future valuation expansion [3]

Group 1 - The latest stock price of Kanghua Biotech is 86.24 yuan, an increase of 2.54 yuan or 3.03% from the previous trading day. The intraday high reached 87.52 yuan and the low was 83.70 yuan, with a trading volume of 527 million yuan and a turnover rate of 5.13% [1] - Kanghua Biotech operates in the biopharmaceutical sector, focusing on the research, production, and sales of human vaccines. Its main products include rabies vaccines and Japanese encephalitis vaccines, and the company is actively expanding into the pet vaccine market [1] - The Shanghai Biopharmaceutical M&A Fund strategically took control of Kanghua Biotech in July, with plans to accelerate the diversification of the vaccine product line and build a vaccine ecosystem. This collaboration is seen as a significant move by Shanghai state-owned assets in the biopharmaceutical field [1] Group 2 - On August 21, Kanghua Biotech experienced a net inflow of 37.11 million yuan in main funds, accounting for 0.36% of its circulating market value. However, over the past five days, there was a net outflow of 114 million yuan, representing 1.11% of its circulating market value [1]

Investment Rating - The investment rating for the company is "Buy" (maintained) [1] Core Views - The company is accelerating the research and development of non-epidemic vaccines, with strong growth momentum from multiple new products [3][5] - Despite short-term pressure on performance, the company maintains its profit forecasts for 2025-2027, expecting net profits of 188 million, 352 million, and 508 million yuan respectively [3][4] - The current stock price corresponds to a price-to-earnings ratio (PE) of 54.2, 29.0, and 20.1 for the years 2025, 2026, and 2027 respectively [3][4] Financial Performance - In the first half of 2025, the company's revenue was 620 million yuan (up 1.28% year-on-year), and the net profit attributable to the parent company was 60 million yuan (down 50.84% year-on-year) [3][4] - The second quarter of 2025 saw revenue of 268 million yuan (up 1.58% year-on-year), with a net profit of -16 million yuan [3][4] - The company’s R&D expenses in the first half of 2025 were 73 million yuan, an increase of 25.62% year-on-year [5] Product Development - The company is focusing on optimizing its product structure, with significant growth in core products such as non-foot-and-mouth disease vaccines, which saw revenue growth exceeding 20% [4] - The company has established a dedicated technical service team for poultry vaccines, leading to a nearly 40% year-on-year increase in revenue from key poultry vaccine products [4] - The company is also expanding its overseas market presence, with sales of pig foot-and-mouth disease vaccines in Vietnam doubling year-on-year [4]

Group 1 - The stock price of Kanghua Biotech is reported at 85.99 yuan as of August 19, 2025, showing a decline of 1.35% from the previous trading day with a trading volume of 650 million yuan [1] - The company operates in the biopharmaceutical industry, focusing on the research, production, and sales of vaccines and biological products, primarily in human and pet vaccine sectors, with a market presence in both domestic and some overseas regions [1] - On the morning of August 19, the stock experienced a rapid decline around 9:47 AM, dropping over 2% within 5 minutes, reaching a low of 88.22 yuan with a transaction volume of 178 million yuan [1] Group 2 - On August 19, the net outflow of main funds was 56.87 million yuan, accounting for 0.56% of the circulating market value, with a cumulative net outflow of 9.80 million yuan over the past five trading days [1]

Investment Rating - The industry investment rating is "Positive" (maintained) [1] Core Insights - The report highlights that a new round of price increases for pigs may gradually begin, with the African swine fever vaccine opening growth opportunities for the animal health sector [4][5] - The report emphasizes that the investment logic for live pigs is marginally improving, supported by both fundamental and policy factors, with recommendations for specific companies [5][31] Summary by Sections Weekly Observation - As of August 15, 2025, the national average price of live pigs is 13.73 CNY/kg, with a week-on-week increase of 0.06 CNY/kg but a year-on-year decrease of 7.44% [4][13] - The price premium for 150kg fat pigs over 120kg standard pigs is 0.28 CNY/kg, indicating a tightening supply [4][13] Weekly Market Performance (August 11-15) - The agricultural sector underperformed the market by 1.84 percentage points, with the agricultural index down 0.14% while the Shanghai Composite Index rose by 1.70% [6][35] - Key stocks that led the gains include COFCO Sugar (+41.04%), Shunli Biological (+13.97%), and Xiaoming Co. (+8.86%) [6][35] Price Tracking (August 11-15) - The average price of live pigs on August 15 is 13.76 CNY/kg, a slight increase from the previous week [6][46] - The average price of piglets is 28.87 CNY/kg, showing a decrease of 5.03% from the previous week [6][46] - The average price of white feathered chickens is 7.20 CNY/kg, with a week-on-week increase of 0.84% [6][51] Key News (August 11-15) - The central government allocated 1.146 billion CNY for agricultural disaster relief, supporting major grain-producing provinces [6][41]

Core Insights - The Chinese pet market is large but fragmented, lacking a dominant national brand despite the presence of leading companies [1][16] - The emotional connection between people and pets is driving the rapid growth of the pet economy, leading to the emergence of various pet-related products and companies [2][3] Market Overview - The pet economy in China is supported by policy changes, rising incomes, and shifting perceptions about pets, evolving from a focus on basic care to a more nuanced understanding of pets as family members [3][7] - The number of pets in urban areas is projected to exceed 120 million by the end of 2024, with a market size of 300.2 billion yuan, reflecting a year-on-year growth of 7.5% [7][8] Company Developments - Wuhu Youpai Technology Co., Ltd. has transitioned from an OEM for pet pads to developing its own brands, with pet care products accounting for nearly 74% of its revenue by August 2024 [2][5] - The company has seen significant growth in overseas markets, with international sales accounting for over 62% of its revenue [8][15] Competitive Landscape - The pet food market is dominated by foreign brands like Mars and Nestlé, but domestic brands are gaining market share, with local companies increasing their presence from 3.5% to 9% in market share from 2015 to 2024 [16][17] - Domestic companies like Guobao Pet and Yiyi Co. are experiencing rapid growth, with Guobao Pet reporting a 21.2% increase in revenue in 2024 [10][11] Consumer Trends - The pet food segment remains the largest market, accounting for 52.8% of total pet spending, with a projected market size of 158.5 billion yuan in 2024 [10][12] - The rise of e-commerce has significantly boosted sales for domestic brands, with Guobao Pet's online sales growing over 50% on major platforms [13] Innovations and Future Outlook - The pet medical sector is emerging as a lucrative area, with companies like Pulaike focusing on veterinary pharmaceuticals and vaccines, which have high profit margins [14] - The market is witnessing an influx of cross-industry players, including tech and real estate companies, diversifying into pet-related products and services [18][19]

Core Insights - The investment logic in the consumer sector has fundamentally shifted from focusing on functional needs to addressing higher-level needs such as safety and self-actualization, with emotional value playing a crucial role [1][2][3] - The new consumption trend has seen a decline in the number of projects and disclosed financing amounts, indicating a cooling off in the market [2][4] - In 2025, the total disclosed financing for new consumption projects was approximately 2.8 billion RMB, a significant drop from previous years [4][6] Investment Trends - The focus has shifted towards long-term value, emphasizing brand repurchase rates, supply chain efficiency, and sustainable business models, moving away from "pseudo-innovation" reliant on capital infusion [1][2] - Projects that are likely to attract capital in 2024 and beyond will need to demonstrate technological innovation, sustainability, supply chain resilience, and adaptability to policies [1][2] Financing Overview - In the first half of 2025, 44 new consumption-related projects disclosed financing, totaling nearly 2.8 billion RMB, with a notable decrease in both project numbers and financing amounts compared to previous years [2][4] - The highest disclosed financing in this period was a 6.65 billion RMB acquisition by Qingdao Beer [6] Sector Analysis - The food and beverage sector remains dominant, with 16 projects disclosing financing of approximately 6.83 billion RMB, half of which are related to supply chain or innovative food [7] - The beverage sector saw limited financing activity, with only five projects disclosing funding, indicating a shift in investor interest [8] Emerging Trends - The pet economy is evolving, with a focus on enhancing the quality of life for pets rather than just meeting basic needs, as evidenced by significant investments in pet health and AI-enabled products [12][14] - The new tea beverage market is experiencing a wave of IPOs, indicating a transition from rapid expansion to a focus on supply chain efficiency and brand differentiation [16][17] Key Characteristics of Successful Brands - Successful new consumption brands in 2025 are characterized by technological innovation, sustainability, resilient supply chains, and a focus on emotional value [18][19] - The investment landscape emphasizes certainty in growth rather than short-term explosive potential, reflecting a deeper evolution in consumer demand [21][22]