Summary of Key Points
Fubei Pet (a leading pet food contract manufacturer) previously failed to enter the A-share market and has now turned to the Hong Kong Stock Exchange for an IPO. Over the past three years, the company's revenue has stagnated at around 1 billion yuan, while net profit has plummeted by 40%. The root of the problems lies in the following factors: Although its contract manufacturing business accounts for 60% of its revenue (the main source of income), it is experiencing slow growth and the loss of major customers; its own-branded products have high gross margins, but revenue continues to decline; the underutilization of new production capacity has led to soaring costs; and changes in the industry environment (leading brands building their own factories and increased competition have reduced profits), resulting in a situation where revenue increases but profits do not.
I. Contract Manufacturing Business: A Stable Source of Income, but with Diminishing Profitability
Fubei is often referred to as the "Foxconn" of the pet food industry, with contract manufacturing accounting for over 60% of its revenue. However, this source of income is becoming increasingly problematic:
- Slow Growth: Contract manufacturing revenue is expected to grow by less than 3% from 2023 to 2025, far below the double-digit growth rates in previous years.
- Loss of Major Customers: The company's largest customer (suspected to be NetEase Yanxuan) reduced its orders by 42 million yuan in 2025, and the total contribution from the top five customers decreased by 64 million yuan.
- Unstable New Customers: While new brands such as Guizhu and Paite Xiansheng have made up for some of the lost business, the pet food industry has a high rate of brand failure, making it uncertain whether these new partnerships will continue.
II. Own Brands: High Gross Margins, but Insufficient to Support Growth
Fubei started developing its own brands in 2007, including Bile, Aibe, and Pinzhuo, with Bile being the main focus (targeting the mid-to-high-end market). However, this business segment is facing significant challenges:
- Declining Revenue: Own-brand revenue decreased from 442 million yuan to 350 million yuan from 2023 to 2025, and its share of total revenue dropped from 41% to 34%. The main brand Bile's revenue has decreased by 76 million yuan in two years, with a market share of only 0.9%, showing a huge gap compared to leading brands.
- High Gross Margins, but Ineffective: Although the gross margin on own-brand products is nearly 50% (twice that of contract manufacturing), the low revenue volume means these brands are not contributing significantly to overall profits. In contrast, the gross margin on contract manufacturing plummeted by 7.3 percentage points in 2025.
III. Overcapacity: New Factories Become a Costly Burden
Fubei believed the industry was in a growth phase and invested heavily in building new factories:
- High Expenses: Fixed asset expenditures exceeded 380 million yuan from 2023 to 2024, with the establishment of new bases such as Fuxin and Fujia, bringing the total number of production sites to six.
- Underutilized Capacity: The overall capacity utilization rate was only 52% in 2025 (a decrease of 15 percentage points over three years), with Fuxin and Fujia having utilization rates of 20% and 29%, respectively.
- Wasted Costs: Depreciation and equipment amortization are added to costs, but without orders for production, these expenses are simply wasted. This has directly led to a decline in contract manufacturing margins and overall profit.
IV. Changing Industry Landscape: Leading Brands Building Their Own Factories, Straining Contract Manufacturers
The pet food industry is still growing, but the business model has changed:
- Past Dependence on Contract Manufacturing: Before 2022, many brands relied on contract manufacturing combined with online marketing to generate profits, allowing manufacturers like Fubei to thrive.
- Current Trend: Leading Brands Building Their Own Factories: As traffic costs increase, brands are building their own factories to control the supply chain (e.g., Guibao and Zhongchong), turning former customers into competitors.
- Reduced Industry Profits: Not only Fubei but also listed companies like Guibao and Peti saw declines in net profit in 2025 due to increasing customer acquisition costs, squeezing the profit margins across the entire industry chain.
Conclusion
Fubei's difficulties reflect the broader transformation of the pet food industry: an over-reliance on contract manufacturing, weak own-brand performance, and misjudgment of production capacity. Coupled with intensified competition, the company has been stagnant for three years. To reverse this trend, it must address the core issues of a high proportion of contract manufacturing, underperforming own brands, and wasted capacity. Even if the IPO is successful, its financial situation may not improve significantly without resolving these problems.