CICC: Maintain CHEERWIN GP's outperform rating with a target price of HKD 3.65

According to the Zhitong Finance APP, China International Capital Corporation (CICC) released a research report stating that it maintains its earnings forecast for CHEERWIN GP (06601) unchanged, with the current stock price corresponding to a P/E ratio of 14/13 times for 2025/26. It maintains an outperform rating and a target price of HKD 3.65, corresponding to a P/E ratio of 20/19 times for 2025/26, representing a 46% upside potential. The company announced its 1H25 performance, with revenue of RMB 1.34 billion, a year-on-year increase of 7.2%, and a net profit attributable to the parent company of RMB 170 million, a year-on-year decrease of 3.3%, in line with the bank's expectations. The company declared an interim dividend of RMB 0.0521 per share (equivalent to HKD 0.0571 per share), with a payout ratio of 40%, indicating a strong return to shareholders. CICC's main points are as follows: 1. 1H25 pet revenue doubled, online sales support steady growth in home care revenue Looking at the revenue for 1H25 specifically: 1) By category: Home care product revenue increased by 4.3% year-on-year to RMB 1.21 billion, with strong growth in new mosquito repellent products; pet and pet product revenue increased by 101.4% year-on-year to RMB 96 million, with offline stores expanding to 77, and the scale of its own brand also growing rapidly; personal care product revenue decreased by 25.8% year-on-year to RMB 26 million; 2) By channel: The company's online revenue increased by 27.4% year-on-year to RMB 520 million, with the revenue proportion increasing by 6.1 percentage points to 38.6%. The company focuses online on strong products such as portable mosquito repellent and home cleaning, with rapid development in new e-commerce channels like Douyin; offline revenue decreased by 2.6% year-on-year to RMB 820 million, supported by brand reputation and distribution networks, the company has accumulated deep roots in offline distribution and key account channels. 2. Revenue structure optimization aids gross margin improvement, increased investment in brand and pet business The company's gross margin for 1H25 increased by 2.9 percentage points to 49.3%. On one hand, it accelerated the creation of upgraded new products, with gross margins for home care/pet and pet products increasing by 2.7/8.6 percentage points to 49.1%/58.1%, respectively; on the other hand, the company increased online resource investment and optimized the e-commerce product structure, with online gross margin for 1H25 increasing by 5.5 percentage points to 59.9%. Improved supply chain efficiency also contributed to gross margin improvement. On the expense side, the company's sales/management expense ratios for 1H25 increased by 5.1/-1.0 percentage points year-on-year, with the increase in sales expense ratio mainly due to the company's efforts in expanding pet stores and building its own brand. As a result, the company's net profit margin attributable to the parent company for 1H25 was 13.0%, a decrease of 1.4 percentage points year-on-year. 3. The layout of home cleaning and personal care + pets strengthens medium to long-term growth space, focusing on the company's cash value and shareholder returns The bank believes that: 1) Home cleaning and personal care: The company continues to promote the high-end upgrade of products, with new high-end natural home care products expected to support future growth. On the channel side, it is expected to consolidate its leading position in offline distribution channels while rapidly developing content e-commerce like Douyin, achieving high-quality development through improved online operations; 2) Pet business: The company has a comprehensive layout in pet products, pet food, and terminal stores, which is expected to fully benefit from the expansion of China's pet industry and the rise of domestic products. With the pace of store expansion and the extension of store service areas, pet store revenue is expected to continue to grow rapidly, and improved operations and increased sales of its own brands are expected to enhance single-store profitability, with self-owned brands like "Stubborn Mouth" also expected to accelerate cultivation 3) In addition, the company's current cash value is prominent. As of June 30, the company has a net cash of 2.65 billion yuan on its books, and the dividend payout ratio has remained high in recent years, providing substantial returns to shareholders. Risk Warning: Product safety and quality issues; high proportion of a single category; related party transactions