ANALYSIS: Smart Pet Industry Growth Benefits Dogness International

Automatic feeders, pet cameras and wearable GPS collars are just a few of the smart pet products that are flourishing, and they are injecting more growth into the Chinese pet economy.

Author: Steve Kanaval   

Few things are the same in every country, but the love of pets might be as solid of a bet as there is. As incomes rise across China, pet stores and pet-related goods are seeing steady growth. According to research by China Agriculture University, the pet industry develops rapidly when a country's GDP per capita is about $3,000 to $5,000. China's GDP per capita was about $8,800 last year.

The value of China's pet market reached 167 billion yuan in 2018 and is expected to grow to 190.8 billion yuan this year ($28.8 trillion), according to Chinese company You Chong Research. Statista backed up these numbers and added that, by 2022, the Chinese pet market will be worth 259.8 billion yuan. Japan's, by contrast, stands at about 1.5 trillion yen ($13.5 billion).

The majority of pet owners in China are demographically situated near the coastlines in bigger cities like Shanghai, Beijing and Guangdong. However, no matter where Chinese pet owners are located, they are willing to invest good money in their furry friends.

"China's pet food market has seen more and more products in recent years to cope with the rising demand of middle-class pet owners," said Li Xi, a Royal Canin consultant quoted in Xinhua Net.

According to a white paper published in 2018 by goumin.com, a Chinese online pet forum, Chinese dog and cat owners are expected to spend over 5,000 yuan (about $740) per pet in 2018, an increase of 15 percent from the preceding year. And as pet ownership grows, so does the knowledge about pet health and diet.

"Our market research finds pet owners in China are more and more well-informed regarding their pet's health, and closely check the ingredients and nutritional elements before buying pet food," Haiming Zhao, general manager of Pure & Natural, told Xinhua Net. "We are developing new products to catch up with consumers' needs."

Among those consumer products are IoT and smart accessories helping to care for pets amidst busy working lives. Automatic feeders, pet cameras and wearable GPS collars are just a few of the smart pet products that are flourishing, and they are injecting more growth into the Chinese pet economy.

DOGZ is Using IoT to Help Owners Improve Pet Health

Dogness International Corp. (Nasdaq: DOGZ) makes smart pet products and pet wellness products. The company also designs high-quality leashes and harnesses from their 10,292 square meter manufacturing facility in the Tongsha Industrial Zone in Dongguan, Guangdong.

Legacy items like leashes, collars and harnesses make up around 70 percent of sales and the company counts major retailers like PetSmart, Petco, Pet Valu, Walmart, Target, IKEA and JD.com Inc. (Nasdaq: JD) as customers.

All told, at the end of 2018, DOGZ counted 69 countries where its products have been sold, and China accounted for 64.3 percent of those sales. Much of these products are manufactured in-house making DOGZ vertically-integrated and strong economies of scale.

The company became publicly traded in late 2017 for $5 a share. DOGZ has traded between the $2.50 and $3.50 range as of late, but it could be significantly undervalued as revenues have climbed year-over-year for the company going from $21.7 million in 2017 to $30.14 million in 2018.

Recently, Dogness added three new leading retailers to its client list, including a well-known U.S. kennel club, a pet distributor also in the U.S. and a pet product distributor in South America.

These relationships will allow DOGZ to sell its new smart products, such as Dogness Smart iPet Robot, Mini Treat Robot, Smart CAM Feeder, Smart Fountain, Smart CAM Treater and updated retractable leash.

"Our new distribution relationships are a direct result of our attendance at international industry trade shows such as CES in Las Vegas and GPE in Orlando," Silong Chen, CEO of Dogness, said in a company press release. "We look forward to working with our new distributors to share our innovative products with pet owners and caregivers worldwide. We are also excited by the opportunity to raise the global profile of the Dogness brand and to execute on our international growth strategy."

The new smart products from DOGZ allow owners to simplify and manage pet lifestyles from their cell phones. The company's "Smart Pet Ecosystem" link owners and their pets through a single app platform that is compatible with both Android and iOS devices.

Dogness has also made sure to protect its R&D innovations holding 120 patents, four of which were added after the IPO in the smart pet field.

Data Deals Could Boost DOGZ's Sales Footprint

These new aforementioned distributors demonstrate that DOGZ is expanding its reach into a new market. However, industry analysts expect Dogness to turn more heavily toward the Chinese domestic market during the ongoing trade war as revenues for Q1 fell by 13.5 percent to $12.8 million as it battled through the tough export tariffs.

On the bright side, DOGZ has a healthy balance sheet with $20.7 million in cash, and the company's new smart product has performed well in the short time since release and could drive sales higher even during a more complicated U.S. market.

Another recent deal with Corey Nutrition Pet Food will also accelerate sales in China sometime in early 2020. Dogness will be the sole distributor of Corey North Paw, and Dogness will also share data with Corey for a richer profile of pet and owner behavior and pet health.

"The rich data collected by our suite of smart pet products will provide valuable insights to Corey Nutrition and our future partners. We look forward to extending our expertise and services to building a long-lasting and rewarding relationship," CEO Chen said after the deal with Corey Nutrition was announced.

Data-exchange deals like the one with Corey could happen more frequently in the future for DOGZ as companies in the space will look to glean as much as possible about consumers in a very competitive and fragmented market.

(The opinions expressed by contributing analysts do not reflect the position of CapitalWatch or its journalists. The analyst has no positions in any stocks mentioned, no plans to initiate any positions within the next 72 hours, and no business relationship with any company whose stock is mentioned in this article. Information provided is for educational purposes only, may be incomplete or out of date, and does not constitute financial, legal, or investment advice.)

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