Introduction

Cheerwin Group Limited, a prominent player in the consumer staples sector, has set its sights on becoming the Procter & Gamble (P&G) of China. With a robust market presence in household care products and its recent ventures into the pet care industry, the company is strategically positioning itself for sustainable growth. This article delves into Cheerwin’s financial performance, strategic initiatives, and future outlook, based on the latest report by UOB Kay Hian.

Company Overview

Cheerwin Group Limited is a leading manufacturer and distributor of personal care products, household care products, and pet care products. The company has been a market leader in household care, with its insecticide and repellent brand SUPERB (超威) ranking first in China from 2015 to 2024, holding a 17% market share in 2023. Its household cleaning brand, Vewin (威王), ranked second in China with a 15% market share in the same year.

Cheerwin’s success is underpinned by its affiliation with LIBY Group’s extensive distribution network, which boasts over 1.2 million points of sale across China. Additionally, the company benefits from high barriers to entry in the household insecticides and repellents market, as new product launches require rigorous verification by the Ministry of Health, taking 1-2 years.

Financial Performance

Despite a challenging 2022, Cheerwin rebounded in 2023 with a net profit of RMB 175 million, a remarkable 164.8% increase compared to the previous year. The company also achieved a gross margin of 44.5%, highlighting its strong operational efficiency.

Strategic Initiatives

Expansion into the Pet Care Industry

Cheerwin entered the pet care market in 2019, initially focusing on pet goods and later venturing into pet food in 2021. In 2023, the company acquired the loss-making Mele (米樂乖乖) and Zhuazhua (爪爪) brands to establish a foothold in offline pet stores. The company currently operates 60 stores in Mainland China, offering a variety of services, including pet product sales, pet grooming, and even cat cafés. Cheerwin aims to manage 200 stores and achieve breakeven in this segment by 2026.

Optimized Product Portfolios

Cheerwin continues to drive growth in its household care products segment, targeting mid-to-high single-digit revenue growth annually. This is supported by its ongoing online channel expansion and optimized product offerings.

Capital Allocation and Dividend Policy

With a healthy balance sheet and strong cash flow generation, Cheerwin focuses on maintaining an 80% dividend payout ratio. The company is also exploring mergers and acquisitions, particularly in the pet business and fast-moving consumer goods sector, prioritizing targets with stable cash flow and growth potential.

Stock Performance and Valuation

Cheerwin Group is currently trading at 11.8x one-year forward P/E, which is 0.5 standard deviations below its historical mean of 14.6x from 2022 to 2024. This valuation presents an attractive opportunity for investors, given the company’s growth prospects and market leadership.

Price Performance

Over the past year, Cheerwin’s stock price has shown resilience, with a 40.6% increase year-on-year. The company’s share price currently stands at HK\$1.94, with a market capitalization of HK\$2,587 million (US\$336 million).

Future Outlook

Cheerwin’s strategic focus on expanding its pet care business, coupled with its stronghold in the household care segment, positions it well for sustained growth. The company’s robust cash flow, healthy balance sheet, and targeted investments in high-growth areas underline its commitment to long-term value creation for shareholders.