CITIC Securities released a research report maintaining its earnings forecasts for Cheerwin Group (06601) unchanged. The current stock price corresponds to 14x/13x P/E ratios for 2025/26. The firm maintains its Outperform rating and target price of HK$3.65, representing 20x/19x P/E ratios for 2025/26 and implying 46% upside potential.
The company announced its 1H25 results with revenue of RMB1.34 billion, up 7.2% year-over-year, and net profit attributable to shareholders of RMB170 million, down 3.3% year-over-year, in line with expectations. The company declared an interim dividend of RMB0.0521 per share (HK$0.0571 per share), representing a 40% payout ratio and demonstrating strong shareholder returns.
Key observations include:
**1. Pet Business Revenue Doubles in 1H25, Online Channels Drive Steady Growth in Home Care**
Breaking down 1H25 revenue by category: 1) Home care products revenue increased 4.3% to RMB1.21 billion, with new mosquito repellent products showing strong growth; Pet and pet products revenue surged 101.4% to RMB96 million, with offline stores expanding to 77 locations and proprietary brands scaling rapidly; Personal care products revenue declined 25.8% to RMB26 million. 2) By channel: Online revenue grew 27.4% to RMB520 million, with revenue share increasing 6.1 percentage points to 38.6%. The company focused on strong SKUs like portable mosquito repellent and home cleaning products online, with rapid development in new e-commerce channels like Douyin. Offline revenue decreased 2.6% to RMB820 million, supported by strong brand reputation and deep accumulation in offline distribution and KA channels.
**2. Revenue Structure Optimization Drives Margin Improvement, Increased Investment in Brand Building and Pet Business**
The company's 1H25 gross margin increased 2.9 percentage points to 49.3%. This improvement was driven by accelerated development of upgraded new products, with home care and pet product gross margins rising 2.7 and 8.6 percentage points to 49.1% and 58.1% respectively. Additionally, increased online resource allocation and optimized e-commerce product structure contributed to online gross margin improvement of 5.5 percentage points to 59.9%, with supply chain efficiency gains also supporting margin enhancement. On the expense side, 1H25 selling and administrative expense ratios changed by +5.1 and -1.0 percentage points respectively year-over-year, with selling expense increases primarily due to pet store expansion and proprietary brand development efforts. Overall, the company achieved a 13.0% net profit margin in 1H25, down 1.4 percentage points year-over-year.
**3. Home Care + Pet Business Layout Strengthens Medium to Long-term Growth Prospects, Focus on Cash Value and Shareholder Returns**
The analysis suggests: 1) Home Care and Personal Care: The company continues to pursue product premiumization, with new premium natural home care products expected to support future growth. Channel-wise, the company is expected to maintain its leading position in offline distribution while rapidly developing content e-commerce platforms like Douyin, achieving high-quality development through improved online operations efficiency; 2) Pet Business: The company has comprehensive coverage across pet supplies, pet food, and terminal stores, well-positioned to benefit from China's pet industry expansion and domestic brand growth trends. Store expansion pace and extended store service scope are expected to drive continued rapid growth in pet store revenue, while operational quality improvements and increased proprietary brand sales should enhance single-store profitability. Proprietary brands like "Stubborn Mouth" are also expected to accelerate development; 3) Furthermore, the company's cash value is prominent, with net cash of RMB2.65 billion as of June 30, and consistently high dividend payout ratios in recent years, demonstrating strong shareholder return commitment.
**Risk Factors:** Product safety and quality issues; high concentration in single product categories; related party transactions.