Petty Shares: Under Pressure from Trade Friction, Maintaining Buy Rating but Lowering Target Price

Overview

Nomura Oriental International released a performance review report on Petty Shares (300673.SS). Due to delays in overseas OEM orders caused by U.S. tariffs and higher-than-expected losses at the New Zealand factory, the company’s 2025 results fell short of expectations, prompting the institution to significantly lower its earnings forecasts and target price for 2026-2027. Nevertheless, the report believes that the company is at a critical stage of transitioning from OEM to its own brands, with its own brand MeatyWay showing significantly faster growth than the industry. As utilization rates rise at the New Zealand and Wenzhou new production facilities, profits are expected to gradually recover in 2026-2027. Based on the expectation that future earnings growth will outpace peers, the institution maintained a “buy” rating and lowered the target price from CNY 19.70 to CNY 16.12, representing an upside potential of 18%.

Core views

Performance Review and Attribution: In 2025, the company achieved revenue of 1.449 billion yuan (-12.7% year-on-year) and net profit attributable to shareholders of 116 million yuan (-36.5% year-on-year), both below previous forecasts. The revenue decline was mainly due to delays in overseas OEM orders caused by U.S. tariff hikes, resulting in a 15.1% drop in export revenue from raw hides and plant-based chew toys. Although improved efficiency at overseas factories boosted gross margin by 2.4 percentage points year-on-year, increased depreciation and amortization at the New Zealand staple food line, reduced exchange gains, and higher R&D spending pushed up operating expenses by 5.6 percentage points year-on-year, ultimately causing net profit to plunge. In the first quarter of 2026, revenue grew 6.7% year-on-year, but net profit still fell 63.7% year-on-year, indicating ongoing short-term pressure. Business Highlights and Transformation Progress: Amid overall pressure, the company’s own brands have become the core growth engine. Meat snacks were the only category to achieve positive revenue growth in 2025, driven by the strong performance of the own brand MeatyWay, which exceeded 55 million yuan in GMV across all channels during Double 11 2025, up over 30% year-on-year. This demonstrates that the company’s strategy of shifting from OEM to OBM (own-brand manufacturing) is taking hold. Although the scale is still small and the entry was relatively late, the growth rate has already outpaced the industry average. Capacity Ramp-Up and Profit Outlook: Improving operational efficiency at the New Zealand staple food line and the Wenzhou baked dry-food line is key to future profit recovery. Currently, wholly-owned subsidiaries “Petty Zhichuang” and “King Country Pet Food New Zealand” are still in the capacity ramp-up phase, posting losses of 40 million yuan and 70 million yuan respectively in 2025, weighing on short-term results. The report expects that as utilization rates at the New Zealand factory increase and sales of the company’s own staple foods expand, profits will rebound in 2026-2027. Earnings Forecast Adjustment and Valuation: Considering currency fluctuations, uncertainties in U.S.-China trade friction, and continued investment in own brands, the institution lowered its 2026/2027 revenue forecasts by 10.8% and 13.9% respectively, and net profit forecasts by 32.7% and 26.8%; it also introduced a 2028 forecast for the first time, projecting compound annual growth rates of 13.8% and 23.8% for revenue and net profit from 2026 to 2028. In terms of valuation, to reflect the company’s faster-than-industry earnings growth outlook, the target price-to-earnings ratio was raised from 23x to 28x (higher than the industry average of 24x), based on the adjusted 2026 EPS of 0.58 yuan, arriving at a new target price of CNY 16.12.

Analysis framework

The report adopted a dual-track analytical logic of ‘short-term disruption vs. long-term transformation.’ First, by dissecting the revenue structure (export OEM vs. own brands) and income statement items (gross margin vs. expense ratio), it pinpointed the core reasons behind underperformance—the external tariff shock and internal depreciation from new capacity—rather than fundamental deterioration. Second, using a capacity-cycle perspective, it defined the current losses at the New Zealand factory as temporary pain during the strategic investment period rather than permanent loss of profitability, and built a two-year profit-recovery model accordingly. Finally, in valuation, it employed relative valuation methods (P/E), assigning a higher multiple than the industry average to price the company’s ‘transformation growth premium,’ reflecting long-term optimism about the upgraded business model.

Methodology notes

• Valuation MethodPE/PEG valuation

  Target PE premium pricing based on earnings growth differential

  Rather than simply applying the industry average PE, the report gave a target PE of 28x (compared to the industry average of 24x) because the company’s projected earnings growth rate (22.8% CAGR for 2026-28 EPS) significantly exceeds that of peers (14.4%). This approach reflects the PEG valuation concept—that high-growth companies deserve higher valuation multiples to quantify market pricing for successful transformation.

• Company Fundamentals and Financial FrameworkOperating/Financial Leverage Analysis

  Fixed costs and operating leverage effects during new capacity ramp-up

  The report focused on how increased depreciation and amortization at the New Zealand factory weighed on short-term profits. This is a typical application of operating leverage analysis: in the early stages of new capacity commissioning, fixed costs remain high while output hasn’t reached full capacity, driving up unit costs and losses. But as capacity utilization surpasses the break-even point, fixed costs get diluted, and profit elasticity will significantly improve. Understanding this pattern helps investors distinguish between ‘cyclical losses’ and ‘structural deterioration.’

• Competition and Strategic FrameworkProduct life cycle

  Characteristics of the brand incubation period during the shift from OEM to OBM

  The report interpreted MeatyWay’s high GMV growth rate alongside its current small scale and high investment as being within the introduction/growth phase of the product lifecycle. At this stage, companies typically sacrifice short-term profitability to gain market share and build brand awareness, resulting in high sales expense ratios but rapid revenue growth. This helps readers understand why, despite overall performance declines, the institution views the strong growth of the company’s own brands as a positive signal.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Petty Shares (300673.SS)

  Report covers the stock, maintaining a buy rating

  Strengths

  The own brand MeatyWay grows far faster than the industry; global capacity layout (Vietnam, New Zealand, Cambodia) diversifies risks; staple food capacity covers key categories

  Weaknesses

  The overseas OEM business is heavily impacted by tariffs; the New Zealand and own-brand subsidiaries are still in the loss-ramp-up phase; short-term expense ratios remain high

  Comparison

  The 2026-28F EPS CAGR (22.8%) significantly exceeds that of Zhongchong Shares (13.2%) and Guibao Pet (15.6%); ROE level is currently lower than peers but expected to improve

  Risks

  Intensified domestic pet food market competition; fluctuating raw material prices; slower-than-expected ramp-up of New Zealand factory utilization; escalation of U.S.-China trade friction

Key data

• 2025 Revenue1.449 billion yuanDown 12.7% year-on-year, below expectations, mainly due to a 15.1% decline in export revenue
• 2025 Net Profit Attributable to Shareholders116 million yuanDown 36.5% year-on-year, dragged down by losses at the New Zealand factory and rising expenses
• MeatyWay Double 11 GMV>55 million yuanUp over 30% year-on-year, strong growth of the own brand
• 2026F Net Profit Forecast Adjustment142 million yuanDown 32.7% from previous forecast
• Target Price-to-Earnings Ratio (2026F)28xRaised from 23x, higher than the industry average of 24x
• 2026-28F Net Profit CAGR23.8%Expected earnings compound growth rate significantly higher than the industry average of 14.4%

Impact & implications

The report believes that Petty Shares’ current performance trough is the result of a combination of external environmental shocks and internal strategic transformation, rather than a loss of long-term competitiveness. For investors, this means tolerating short-term earnings volatility and profit erosion from new capacity in the near term. However, in the medium to long term, if the New Zealand capacity ramps up smoothly and the company’s own brands continue to gain momentum, the company will break free from its reliance on low-margin OEM business and achieve a double boost in profitability quality and valuation system. Key catalysts include better-than-expected recovery of overseas orders, rapid improvement in utilization rates at the New Zealand factory, and accelerated sales of staple food products.

Risks

• Intensified domestic pet food market competition
• Risk of fluctuating raw material prices
• New Zealand factory capacity utilization ramp-up slower than expected
• Uncertainty in U.S.-China trade friction and tariff policies
• Currency fluctuation risk

What to watch

• Status of recovery of overseas OEM orders and changes in tariff policies
• Utilization rate and breakeven timing of the New Zealand factory
• Speed of sales ramp-up for the own brand MeatyWay and staple food products
• Trend of raw material prices and changes in gross margin
• Whether subsequent quarterly expense ratios can fall as revenue scales up