China Pet Foods Expands Annual Production of 5,000 Tons of Dry Pet Food Production Line Project

It is understood that China Pet Food plans to expand the annual output of 5000 tons of dried pet food production line project. By then, the pet snack production capacity will increase from the current annual output of 12,000 tons to 20,800 tons, an increase of more than 70%. Industry sources stated that while pet food companies actively explore overseas markets and domestic markets, they must also pay attention to their own brand building.

Yantai Zhong Phong Food Co., Ltd. (hereinafter referred to as “China Pet Food”) is expected to be the first pet food manufacturer in Shandong to successfully sprint IPO.

A few days ago, the prospectus disclosed by China Pet Foods indicated that the company plans to raise 322 million yuan of funds for an expansion project of an annual output of 5,000 tons of dried pet food production lines, and an annual output of 3,800 tons of biscuits, small calcium bones, and dental bone pet food items. , pet food R & D center projects and supplementary operating capital projects. Of which, 120 million yuan was used to supplement working capital.

According to China Pet Food's prospectus, China Pet Food's main business mainly originates from overseas markets, including the United States, Europe and Japan. In sales of overseas products, sales of self-owned brands only accounted for 1.51% of the overall revenue for the year, and most of them were OEM products. In addition, while planning to expand production capacity, the book value of the company's inventory accounts for nearly 50% of its current assets. The reporter called China Pet Foods and sent an interview letter to interview related questions. The other party responded that the company’s main person in charge had traveled on business in the field recently and could not be interviewed for the time being.

Increased inventory continues to expand production capacity
According to the statistics, China Pet Foods was established in January 2002 and is mainly engaged in the research, development, production and sale of pet foods for dogs and cats. The specific products cover pet snacks and staple foods. The staple food includes pet canned foods and pet foods. Products. The company received counseling on the market in November 2015, and disclosed its prospectus for the first time in April of the following year. It was also the first pet food manufacturer in Shandong to sprint for IPO.

From 2014 to 2016, the company achieved operating revenue of 491 million yuan, 648 million yuan, and 790 million yuan respectively, and net profit of 8.6547 million yuan, 526.505 million yuan, and 85.7246 million yuan, respectively.

According to the prospectus, in 2016, the pet food snacks and pet canned products had a capacity of 11,900 tons and 10,000 tons, respectively, and the capacity utilization rates were 98.99% and 109.99%, respectively, at full capacity. The fund raised by the company will mainly invest in the "annual output of 5,000 tons of dried pet food production line expansion project" and "annual output of 3,800 tons of biscuits, small calcium bone, dental bone pet food project". The company believes that the above projects can improve the company's pet snack production capacity and efficiency, as well as improve the company's pet retail product structure.

It is worth noting that in 2014 to 2016, the total amount of biscuits, small calcium bones, and bones for jewels for self-use and export of China Pet Food was 456.56 tons, 453.52 tons, and 665.31 tons, respectively.

In other words, after the fund-raising construction of the "annual output of 3,800 tons of biscuits, small calcium bone, bone pulp pet food project" put into production, the new production capacity will be the company's sales in 2016 about six times. In addition, if China Pet Food’s raised capital investment project is successfully implemented, the pet snack production capacity will increase from the current 12,000 tons/year to 20,800 tons/year, an increase of over 70%.

However, the balance of inventory in China Pet Foods has been rising in recent years. From 2014 to 2016, the book value of the company's inventory was 9.163.48 million yuan, 127 million yuan, and 159 million yuan respectively, accounting for 49.76%, 49.62%, and 46.79% of the current assets at the end of the period. The reason for the increase was due to the rapid expansion of company sales and the corresponding increase in raw materials and inventories.

Zhu Danpeng, a researcher in the food and beverage industry at the China Brand Institute, believes that China Pet Foods currently has a relatively high inventory, but it is a benign stock. Because the company's current high capacity utilization rate shows that it does not exist for the time being. However, it should be noted that when new projects are put into production, how to absorb new production capacity will be one of the issues that must be faced by China Pet Food.

Unlike pet snacks and pet canned products, China Pet Foods' pet food product series, which was involved in the production in 2012, has been using its capacity utilization rate at a relatively low level. The capacity of the product is designed to be 10,000 tons. In 2016, the output was only 746.20 tons, and the capacity utilization rate was only 7.46%. This is already the highest level in the past three years.

China Pet Foods believes that “at present, in the pet food market, the market concentration of products is relatively high. This company belongs to new enterprises and creates a well-known brand, which requires not only higher advertising costs, but also long-term market cultivation and Accumulated, therefore, the company's pet dry capacity utilization rate was lower during the reporting period."

Super 80% revenue from OEM
China Pet Foods stated in the prospectus that during the reporting period, the total operating income of China Pets Co., Ltd. amounted to 1.96 billion yuan, but from the point of view of the distribution model, over 80% of them are overseas, and overseas revenue is mainly generated by international brands. This means that the main revenue of China Pet shares comes from OEM revenue.

From 2014 to 2016, the company’s overseas sales revenue from its main products accounted for 88.59%, 87.69% and 86.90% of the total revenue. It is mainly sold to more than 30 countries and regions such as North America, Europe and Asia. Among them, the United States, Japan and Europe are the main export regions of the company. However, due to the large scale of the above-mentioned pet food market, China Pet Food's existing food sales accounted for less than 1% of each major target market.

Shen Meng, executive director of Chanson Capital, believes that for the pet supply market, the international market is relatively stable and mature, while the business return rate is also relatively higher than the domestic market. However, the main business of China Pet Foods is oriented to the international market. For domestic investors, it may produce a lack of analysis and judgment basis for the target market. In particular, investors who are mainly retail investors do not have the ability to cross-boundary research. Therefore, it is difficult for such listed company's performance expectations and market competition and fluctuations to grasp in a timely manner, which may affect the performance of the company in the capital market.

In fact, the domestic pet food market is rapidly rising. According to the White Paper of the China Pet Industry 2016 released by the Academy, the pet market in China has grown by nearly 50 times between 2004 and 2015 and reached 97.8 billion in 2015, and is expected to exceed 200 billion yuan by 2020. turn off.

China Pet Foods is also planning to open up the domestic market. Its strategy is to focus on self-owned brand sales, supplemented by agency brands. It plans to use three years or so to integrate domestic sales resources and strengthen e-commerce operations, channel integration and expansion. Product lines and other measures to gradually increase the company's products in the domestic market share. However, China Pet Food did not disclose specific plans.

It is worth noting that China Pet Food’s sales in the domestic market accounted for a relatively small proportion, but its product gross margin was much higher than that in foreign markets. In 2016, the company’s domestic product gross margin was 42.21%, and the gross margin of its export products was only 25.69%.

This is due to differences in the company's sales of products in different markets. The reporter learned that in the foreign markets, China Pet Foods mainly produces OEM products in accordance with customer orders. The sales volume of its own brands is relatively small, and all products are produced in accordance with customer orders. In 2016, OEM product revenue was RMB 670 million, and self-owned brand revenue was only RMB 11.8651 million.

In the domestic market, China Pet Foods sells its products with its own brands, including brand premiums, so the gross profit margin is higher than OEM OEM products.

Shen Meng told reporters that the advantage of producing OEM products is that they can quickly get a large number of orders, and do not have to worry about the retail market sales and other issues. However, the disadvantage is the lack of the construction of its own brand, and it is unable to increase the profitability. At the same time, the pet food market currently belongs to the brand oligopoly competition to a certain extent. If the enterprises are OEM-based, the bargaining power will be weakened, and it is difficult to increase the profitability.

In addition, from 2014 to 2016, the number of independent self-branded customers in China Pet Foods was 13, 15 and 16, respectively, without major changes.

China Pet Foods stated in the prospectus that in the developed countries and regions such as Europe and the United States, the pet food market has become more mature. Some large brands have established a strong brand image and have occupied most of the market sales channels. Marketing costs and risks are relatively high. Therefore, the company adopted cooperation with well-known local manufacturers to enter the local market with OEM OEM.

Zhu Danpeng believes that China Pet Food should achieve "two legs" development in the future. First of all, continue to make OEM production in overseas markets, in addition, turn its attention to the domestic market, use the incremental increase of the domestic market to absorb new production capacity, and increase the construction of independent brands to enhance their own profitability.