Goldman Sachs Gambol Pet Group (301498): Earnings Revision Amid Investment Cycle; Neutral Rating Maintained

Goldman Sachs maintains a Neutral rating on Gambol Pet Group (301498.SZ) with a 12-month target price of Rmb 66, revised down from Rmb 73, offering 13.5% upside from the current Rmb 58.13 share price. The adjustment follows 4Q25 and 1Q26 results showing weakened net profitability despite revenue outperformance. 4Q25 revenue grew 29.1% year-over-year to Rmb 2,032 million, while 1Q26 revenue increased 11.1% to Rmb 1,644 million. However, 1Q26 net profit plummeted 39.5% to Rmb 124 million, significantly missing estimates. Goldman adjusted its 2026-2028E net profit forecasts downward by 6% to 12%, utilizing a sum-of-the-parts valuation methodology. The firm believes Gambol remains in an aggressive investment cycle, prioritizing market share expansion and brand building over short-term profitability. Margin pressure stems from overseas headwinds including tariffs and currency fluctuations, alongside increased domestic investments in talent and channel infrastructure. Management anticipates selling expenses to gradually decrease starting in 2H26 as brand positioning stabilizes and cross-channel expansion matures. Key catalysts to monitor include upcoming 618 shopping festival metrics, which will verify brand momentum and channel efficiency. Tariff reductions on pet food exports from China to the US (down to 35%) and Thailand to the US (down to 10%) are expected to support OEM revenue and margins in the second half. Capacity expansions in Thailand and China remain on track.