Zhongtai International: Maintain CHEERWIN GP "Buy" rating with a target price of HKD 3

According to the Zhitong Finance APP, Zhongtai International released a research report maintaining a "Buy" rating for CHEERWIN GP (06601), predicting a net profit of 210 million in 2025, with a target price of HKD 3.00, corresponding to a 4.0 times price-to-earnings ratio after excluding cash. The company continues to promote a multi-brand, multi-category, and all-channel strategy, accelerating the layout of its pet business. The company's cash flow is stable, with cash and cash equivalents of approximately 2.34 billion in the first half of the year, accounting for about 75.5% of the total market value; it has a generous dividend policy, with a dividend yield of 6%. Revenue is expected to be 1.97 billion and 2.23 billion in 2025-2026, representing year-on-year growth of 8.3% and 13.2%; net profit is expected to be 210 million and 240 million, with year-on-year growth of 3.7% and 14.2%.

The main points of Zhongtai International are as follows:

Gross margins across all categories have risen

CHEERWIN GP achieved revenue of 1.34 billion (RMB, the same below) in the first half of the year, an increase of 7.2% year-on-year. Benefiting from the increase in the revenue share of the pet category and changes in the sales channel structure, the overall gross margin rose by 2.9 percentage points to 49.3%. Despite operating expenses increasing by 20.7% year-on-year, operating profit remained flat compared to the same period last year. On the other hand, due to the expiration of the company's tax incentives, the effective tax rate temporarily rose to 26.2%, but it will fall back to about 20% for the full year. These combined factors led to a net profit of 170 million in the first half of the year, a slight decline of 3.3% year-on-year. The company maintains a high dividend policy, with an interim dividend of HKD 0.057 and a payout ratio of 40%, and it will maintain an annual payout ratio of 80%.

Pet category accelerates growth, revenue growth exceeds 100%

In the first half of the year, the company's pet category achieved revenue of 96 million, a year-on-year increase of 101.4%, with the pet category's share rising from 3.8% in the same period last year to 7.2%. Thanks to the increasing richness of products and improved economic benefits, as well as the continuous expansion of offline stores, the gross margin of the pet segment increased by 8.6 percentage points to 58.1%, with an expansion speed exceeding expectations. In the first half of the year, approximately 77 offline pet stores were accumulated, with plans to increase self-operated stores to 200 by 2027. The company also plans to launch a franchise model as early as next year, entering a rapid growth phase. The company's core home care category achieved revenue of 1.21 billion, a year-on-year increase of 4.3%. The company focuses on popular products, promoting continuous upgrades and distribution coverage of home care products. Under the optimization of category structure, the proportion of high-margin home cleaning and air care products increased, leading to a gross margin increase of 2.7 percentage points to 49.1%. The company's market position in the home category is solid, with the market share of its flagship insect repellent products ranking first for 11 consecutive years.

Online multi-channel focus on popular products to respond to changes in offline channels

In the first half of the year, by channel: online revenue increased by 27.4% year-on-year to 520 million, with the revenue share rising to 38.6%. Based on deepening online sales platforms, the company achieved rapid development in content e-commerce channels, with over 800 pieces of content deployed in the first half of the year; the Super We mosquito repellent and Xilan air care products ranked first in market share on Douyin. Offline revenue fell by 2.6% year-on-year. To actively respond to changes in offline channel consumption, the company strengthened the distribution quantity and quality of high-margin products, enhancing market fundamentals. It promoted products using special display methods such as product image displays