China Galaxy Securities: The pet industry is rapidly growing in size, with a focus on recommending pet food and medical sectors.

China Galaxy Securities released a research report stating that the scale of China's pet industry is expected to exceed 400 billion yuan by 2027. Changes in consumption trends such as emotional economy, scientific pet raising, and rational pet raising will bring structural opportunities. Sub-industries such as pet food and medical care are expected to continue expanding, and related companies' profitability is expected to further enhance. The focus is on recommending the pet food and pet medical care sectors. Key points from China Galaxy Securities: Structural opportunities in the 400 billion yuan pet economy blue ocean China's pet industry is in a rapid growth stage, with the market size exceeding 300 billion yuan in 2024. Changes in consumption trends bring new opportunities to the industry and become an important support for the continuous prosperity of the pet economy: (1) The emotional economy is heating up, with young singles and the elderly becoming representative consumer groups for pet consumption. (2) Under the upgrade of scientific pet raising concepts, it may catalyze demand for more segmented products. (3) Under the drive of rational pet raising concepts, product cost-effectiveness and practicality are more emphasized, and there is a trend of price regression in consumption. Growth engine for pet food: Main course upgrading + new channel expansion The domestic pet food market is a sector with growth advantages. The market size of the pet food industry in 2024 reached 158.5 billion yuan, with a year-on-year growth of 8.5% and a CAGR of 11.4% from 2017 to 2024. With domestic companies strengthening their own brands to seize market share and domestic substitution underway, the industry landscape may be reshaping. The growth engine for the future domestic market, the bank believes, comes from the growth of the main course market. The proportion of the main course in food consumption increased from 62.4% in 2017 to 67.6% in 2024, with stronger user stickiness and stability, helping to enhance consumer brand recognition; on the other hand, new channels such as Douyin and Pinduoduo have shown impressive growth in e-commerce, and the growth model is shifting from "reaching out to customers through videos" to "all-channel growth", accelerating the expansion of online channels for pet food. Expansion key for pet medical care: Chain expansion + accelerated vaccine substitution Pet medical care is the second largest sub-industry in the pet industry, with a market size of 84.1 billion yuan in 2024, a year-on-year growth of 5.6%, and a CAGR of 16.7% from 2017 to 2024. In recent years, China has frequently introduced policies related to pet health, encouraging domestic research and development of pet vaccines and drugs, regulating the management of the veterinary industry, and talent development. The bank believes that the future growth of the pet medical care industry may be jointly driven by quantity and price, i.e. the increase in the number of pets and the improvement in immunization rates, as well as the profitability advantage brought by high medical prices. In terms of pet hospitals, under the trend of chain expansion, the scale effect and channel advantages of leading enterprises will become more prominent. In terms of pet vaccines, China has evaluated a total of 8 domestically produced feline triple vaccines in four batches through emergency evaluations, breaking the monopoly of ShuoTeng's "MiaoSanDuo". Considering the advantages of domestic vaccines in terms of price, strain, and channels, the domestication breakthrough for vaccines is expected to accelerate. Risk warnings: Risks from trade frictions, intensified market competition, and fluctuations in raw material prices.