A recent report by Goldman Sachs indicates that the number of pets in China will surpass the number of children under four years old for the first time this year, and by 2030, the number of pets in China will be twice the number of children. In recent years, the pet economy has become an important sector attracting attention from the capital market, with some institutions predicting that its scale may exceed one trillion yuan.
However, Securities Times reporters noted that the overall market capitalization of pet economy concept stocks in the A-share secondary market is relatively small, and the number of listed companies is not large. Several funds hold significant positions in pet concept stocks, and these funds have achieved impressive performance this year, but most of them are small and medium-sized funds.
Which fund managers hold significant positions in pet economy concept stocks? What are the future prospects of the pet economy? Recently, reporters visited pet hospitals and shops in Shenzhen, and interviewed some pet owners and fund company researchers to discuss the booming development of the pet economy and investment opportunities in the secondary market, and to sort out the investment strategies of public funds in the secondary market for the pet economy.
The pet economy is booming.
"Pet hospitals are really expensive; they can easily cost nearly 10,000 yuan." A reporter from Securities Times saw at a pet hospital that Ms. Liu's cat's fracture surgery cost nearly 18,000 yuan.
A reporter from Securities Times observed at a pet hospital that the highest price for a VIP ward for hospitalization/observation was 1,000 yuan, while an ICU oxygen chamber cost 2,500 yuan per animal per day. "That's the price in Shenzhen. If you can afford it, buy insurance," Ms. Wang told the reporter. She explained that she had purchased insurance for her pet on an online platform for a little over 30 yuan per month. Her pet's most recent gastroenteritis infection cost 2,305 yuan, of which 1,414.70 yuan was reimbursed.
During the reporter's visit, it was found that the consumption content derived from the pet economy is becoming increasingly diverse, showing a "hundred flowers blooming" characteristic. In addition to the comprehensive pet medical care and pet insurance coverage mentioned in the above case, which are priced higher and higher, there are also pet food, toys, grooming, boarding services, etc. Pet stores sell a wide variety of pet products, and some stores have even created pet social communities, extending the pet consumption scenario from animals to people.
Furthermore, the latest data shows that the pet industry on Taobao and Tmall continued its high growth momentum during this year's Double 11 shopping festival. Within just four hours of the sale starting, 658 brands saw their sales double year-on-year, and 659 brands saw their order volume double year-on-year. Pet brands specializing in high-end pet food and smart pet care devices experienced a comprehensive surge in sales.
"The pet economy is expected to become an extremely important economic sector in the future. With the trends of single people, low birth rates, and empty-nest elderly, the demand for pets is growing," Liu Min, a researcher at Debon Fund, told reporters.
Liu Min believes that the development potential of the pet economy can be assessed using two indicators: firstly, market penetration rate. In the United States, the market penetration rate of the pet economy is close to 70%, while in Japan, this figure is close to 50%. In contrast, China's current pet economy market penetration rate is less than 50%, indicating that this sector still has significant growth potential. Secondly, per capita consumption expenditure. Currently, China's per capita annual pet expenditure is less than 3,000 yuan, with pet food accounting for over 70% of this expenditure. There is still considerable room for growth in areas such as pet supplies, medical services, and insurance. Overall, my country's pet economy still has significant room for growth and is developing in a more diversified direction.
Western Securities Fund also believes that the pet economy is likely to continue its growth in the future. Firstly, the companionship economy is booming due to the aging population, with millennials and Generation Z gradually creating new ways for people to interact with their pets, leading to a continuous increase in pet ownership. Secondly, there are still significant differences in the average annual pet spending across different countries and regions, suggesting substantial room for future growth.
Public funds have heavily invested in these funds, with many achieving strong performance this year.
Compared to the booming consumer market, the overall market capitalization of pet economy concept stocks in the A-share secondary market is relatively small, and there are not many listed companies. Among the many concept stocks such as Guabao Pet, Zhongchong Shares, Petty Shares, Yuanfei Pet, and Yiyi Shares, only Guabao Pet and Zhongchong Shares have a market capitalization of over 10 billion yuan. These stocks are heavily held by multiple funds, and there are even foreign institutions holding shares.
The third-quarter report shows that three mutual funds appeared in the top ten circulating shareholders list of Guabao Pet: Xin'ao Xingyi C, managed by Li Bo, held 2.4517 million shares; Guotai Jintai C, managed by Li Hai, held 1.0096 million shares; and Jiaoyin Domestic Demand Growth One-Year Holding, managed by Han Weijun, held 946,900 shares. As of November 9, the year-to-date returns of the above three funds were 19.32%, 14.85%, and -9.58%, respectively.
Zhongchong Co., Ltd. appeared for the first time in the top ten holdings of Guotai Junan Jundexin Two-Year Holding C Fund. The fund manager increased its holdings by 947,400 shares to 1,864,400 shares in the third quarter, ranking it as the sixth largest holding in the fund. As of November 9, the fund's year-to-date return was 9.03%.
Fund managers Teng Yue and Sun Lushen also hold shares in Zhongchong Co., Ltd., which ranks 6th among the top ten holdings of the mini-fund, China Merchants Fengkai C. This fund is a large-cap growth-style flexible allocation fund with a year-to-date return of 15%. However, as of August 24, its size was only 8 million yuan. Zhongchong Co., Ltd. also appears 7th among the top ten holdings of Western Securities Research Selected C fund, which has achieved a return of 12.78% in the past six months. As of September 30, the fund's size was 72 million yuan.
In the third quarter, fund managers Chen Baoguo and Ge Shan, taking into account changes in macroeconomic policies and industry trends, judged that market opportunities might gradually shift from being driven by external factors to being driven by domestic demand. Accordingly, they reduced their allocation to dividend-paying assets and appropriately increased their allocation to high-value sectors such as consumption and manufacturing.
Boda Shengli Fund has held Petty Holdings for six months, making it the 9th largest holding among its top ten holdings. The fund's top eight holdings are all in the information technology sector. As of November 6th, Boda Shengli's six-month holding period yielded a year-to-date return of 7.37%. Notably, foreign institutions UBS Group and Morgan Stanley International appeared in the 8th and 9th positions among the top ten shareholders of Petty Holdings, another pet economy concept stock.
The industry is booming, and leading companies have the ability to grow through economic cycles.
While the pet economy is experiencing rapid growth and a flourishing of diverse sectors, the number of listed companies in the secondary market is small, and the industry has yet to produce any behemoth-like enterprises.
A representative from Western Securities Fund believes that A-share listed companies are currently mainly concentrated in the pet food and pet supplies sector. Taking the pet food industry as an example, firstly, the industry's prosperity is evident; the compound annual growth rate of the pet food industry over the past five years has reached 16%, with leading companies experiencing even higher growth rates. This high prosperity is one of the key reasons why the pet sector enjoys high valuations. Secondly, the industry's gross profit margin and net profit margin are significant factors. Initially, due to substantial investment in e-commerce marketing and a focus on OEM manufacturing, the industry's gross profit margin was difficult to exceed 30%. However, with the formation of brand capabilities and the effectiveness of marketing expenditures, the gross profit margin of excellent companies has increased to over 40%. Brand building is another reason why the pet sector enjoys high valuations. Looking ahead, as the industry enters a period of stable development and the industry structure gradually stabilizes, the sector is expected to gradually complete its valuation adjustment.
Liu Min believes that the pet food sector is currently the most noteworthy segment of the pet economy. In recent years, the trend of domestically produced pet food replacing imported brands has been evident, making it a sector with strong beta potential. Other sectors, on the other hand, are currently smaller in scale and still in the early stages of industry development, with significant uncertainties surrounding specific target companies.
A representative from Western Securities Fund suggests focusing on pet food. Firstly, the market is large; pet food accounts for nearly half of the total pet economy market, which is worth hundreds of billions, and it continues to grow. Secondly, the industry landscape is improving; due to intense price wars in the past, many companies have exited the market, and the industry is now showing signs of replacing foreign companies and moving away from intense competition. Companies with strong brand recognition are likely to experience faster growth. In addition, pet healthcare is also worth noting, as its market size is second only to pet food. However, no companies in this sector are currently listed; future IPOs of leading companies in the industry should be monitored.
"In the consumer sector, the leading companies we focus on, such as those in the trendy toy, robot vacuum cleaner, smart home, jewelry, and pet industries, have all demonstrated clear growth potential that transcends economic cycles," said Li Bo of Cinda Australia Asia Fund.
