CICC: Maintaining CHEERWIN GP (06601) outperform industry rating, target price of 3.65 Hong Kong dollars.

CICC released a research report stating that considering the acquisition and consolidation of Hebei Kangda, CHEERWIN GP (06601) has raised its 2026 attributable net profit by 6% to 250 million yuan and introduced a 2027 attributable net profit of 270 million yuan. The current stock price corresponds to a 11/10 times P/E ratio for 2026/27. The outperform industry rating and target price of 3.65 Hong Kong dollars remain unchanged, corresponding to a P/E ratio of 17/16 times for 2026/27, with a 59% upside potential. Key points of the CICC report are as follows: Performance in 2025 meets expectations The company announced its performance in 2025, with revenue increasing by 9.2% to 1.988 billion yuan and attributable net profit increasing by 10% to 223 million yuan, meeting the expectations of the bank. The dividend payout ratio for 2025 reached 80%, with a dividend yield of 6.8% as of the date of the annual report. Continued high growth in the pet business, steady growth in home care In terms of revenue in 2025, 1) by category: revenue from home care increased by 5% to 1.71 billion yuan, with multiple core products successfully developed; revenue from pets increased by 74.3% to 220 million yuan, with continued rapid growth in pet food, increased contribution from stubborn mouth fresh meat packs, continued expansion of offline experiential formats, and increase in the number of offline pet stores to 73, with simultaneous improvement in single store efficiency; revenue from personal care decreased by 13.9% to 46 million yuan; 2) by channel: online revenue increased by 30.2% to 870 million yuan, with an increase of 7.0 percentage points in revenue share to 43.9%, with the company developing new emerging channels with differentiated new products, and rapid growth of channels such as Douyin e-commerce and instant retail; offline revenue decreased by 3.0% to 1.11 billion yuan. Changes in revenue structure and product differentiation drove a 3.5 percentage point increase in gross margin in 2025 The company's gross margin in 2025 increased by 3.5 percentage points to 52.6%, with the fast-growing high-margin pet business driving an improvement in the company's revenue structure. On the other hand, with a focus on differentiated and high-end new products and under the strategy of optimizing product structure, gross margins for home care and pet business increased by 2.9 and 5.3 percentage points, respectively, to 52.1% and 60%, while supply chain efficiency improvements also contributed to the improvement in gross margin. On the expense side, the sales/management expense ratios in 2025 increased by 5.5 and 1.3 percentage points, respectively, year-on-year, with online advertising driving the increase in the sales expense ratio. Overall, the company achieved a net profit margin of 11.2% in 2025, which was basically flat year-on-year. Acquisition of Hebei Kangda strengthens the advantages of the home care business, focusing on cash value and shareholder returns The company announced the completion of the acquisition of 100% equity of Hebei Kangda, a leading domestic home care enterprise with business covering daily chemical products such as insecticides and detergents. Its brand Qiangshou leads the market share in the northern region of China, with revenues and after-tax profits of 468 million and 86 million yuan respectively in 2024. The bank believes that the company and Hebei Kangda have synergistic advantages in product innovation and research and development, supply chain management, and channel networks, and are expected to strengthen the company's market share in the home care market in the medium to long term. In addition, the company currently has ample cash reserves, with net cash of 2.837 billion yuan as of the end of 2025, and a high dividend payout ratio of 80% maintained in 2023-25, showing a strong commitment to shareholder returns. Risk Warning: Product safety and quality issues; high concentration in a single category; related party transactions.