Summary of Petpal Pet Nutrition Technology (300673.SZ) Earnings Call Company Overview - **Company**: Petpal Pet Nutrition Technology - **Ticker**: 300673.SZ - **Market Cap**: Rmb4.3 billion / $606.8 million - **Industry**: Consumer Staples Key Highlights Financial Performance - **2Q25 Results**: Net profit (NP) was Rmb57 million, 5% above expectations, while sales were 18% below expectations due to tariff impacts on overseas ODM business and adjustments in domestic branded business mix [1][2] - **Sales Growth**: Domestic brand Meatyway achieved 50% year-over-year (yoy) growth, targeting Rmb200 million in sales for 2024 [1] - **Revenue Forecasts**: Revenue estimates for 2025-2027 have been adjusted downwards by 1%-5% due to softer sales but improved gross profit margins (GPM) [2][24] Tariff and Margin Dynamics - **Tariff Sharing**: The company managed to control tariff sharing to 2-3 percentage points despite tariffs increasing to 19-20% in Cambodia and Vietnam [1] - **Margin Expansion**: Overseas margins expanded in 1H/2Q25 due to favorable cost/FX and higher pricing in Southeast Asia [1] Capacity and Production - **Factory Capacity**: The company plans to add 5,000 tons of capacity by the end of 2025, with 2,000 tons in Vietnam and 3,000 tons in Cambodia, primarily for pet treats [18][20] - **New Zealand Factory**: Expected to contribute Rmb1 billion in capacity at full rate with a long-term GPM of 35%, although currently operating at a loss of Rmb20 million in 1H25 [1][18] Product and Brand Strategy - **Product Launches**: Plans to introduce more freeze-dried dog staple food products and innovate baked dog staple food with balanced nutrition [21] - **Sales Channels**: Continued investment in marketing and promotion on platforms like Douyin and Red, with high penetration in Sam's Club and expansion plans for other supermarkets [21] Market Outlook - **Sales Growth Expectations**: Management does not foresee a significant decline in sales growth for full-year 2025 despite lower prices due to tariff impacts, expecting higher volume to offset this [18] - **Profitability**: Continued GPM expansion is anticipated due to self-operated factories and strong demand momentum [21] Risks and Considerations - **Competitive Landscape**: Risks include intensified competition in the overseas market and potential changes in orders or receivables from large clients [27] - **Tariff Risks**: Additional tariffs on pet food exports from China to the US could impact profitability [27] Valuation and Rating - **Target Price**: The new target price is set at Rmb14.2, down from Rmb14.4, based on a sum-of-the-parts (SOTP) valuation [2][26] - **Rating**: The company maintains a Neutral rating since September 27, 2021 [12] Conclusion Petpal Pet Nutrition Technology is navigating a challenging environment with tariff impacts and competitive pressures but is positioned for growth through strategic capacity expansions and product innovations. The company’s focus on maintaining margins and exploring new market opportunities will be critical in the coming periods.

Investment Rating - The report does not explicitly state an investment rating for the pet food industry in China Core Insights - The pet food market in China is experiencing robust growth, with online GMV across major platforms increasing by 18% YoY in May 2025, driven by a 22% rise in volume despite a 4.3% decline in average selling price [2] - Douyin is leading the growth in the market, with a 54% YoY increase in GMV, significantly outperforming JD and Tmall [2] - The top 10 pet food brands accounted for 39.7% of the market share in May, showing an increase of 1.7 percentage points MoM and 3.2 percentage points YoY [3] Sales Trends - Gambol's online retail sales increased by 42% YoY in May, with its premium cat food brand, Fregate, surging by 147% YoY [4] - China Pet Foods (CPF) recorded an 18% YoY growth in online sales in May, with its brand Toptrees growing by 50% [5] - Petpal's core brand, Meatyway, saw a 14% YoY increase in online sales in May and a 38% YoY rise for the January–May period [5] Cost Trends - The average cost of raw materials for pet treats and staple food declined by 7% and 2% YoY, respectively, in May 2025, primarily due to lower prices for chicken, duck, and soybean meal [6] Market Share Dynamics - The market share for Myfoodie and Fregate increased by 0.5 percentage points and 1.6 percentage points YoY, respectively [4] - CPF's aggregate online sales for January–May were up 24% YoY, with Toptrees' market share increasing to 1.1% [5] Online Sales Channels - Online channels for pet food are showing significant growth, with Tmall, JD, and Douyin all contributing to the overall increase in GMV [27][29]