The 24Q1 snack sales business grew as scheduled, and profits showed resilience

The company achieved operating income of 4.83 billion yuan in 2024Q1, +534% year-on-year, +9.95% month-on-month, and net profit of 6.24 million yuan to mother, reversing losses from month to month. The mass-selling snack industry may still be in a period of rapid store penetration, and Wanchen Group has scale effects and marketing and operation advantages. We maintain the company's profit forecast for 2024/2025/2026, and expect to achieve net profit of 1.90/3.59/535 million yuan in 2024/25/26. The segmented valuation method was adopted, and the company was given a target price of 28.67 yuan to maintain the “gain” rating.

Q1 The snack sales business grew as scheduled, and profits showed resilience

The company achieved revenue of 4.83 billion yuan in 24Q1, +534% year-on-year and +9.95% month-on-month. Among them, the mass snack business achieved revenue of 4.695 billion yuan, which is estimated to be a three-digit increase over the previous year, and achieved 10.4% month-on-month growth. The company's snack sales business expanded as scheduled, which in turn supported the rapid growth of 24Q1 revenue. As of January 2024, the company's official website information shows that the number of stores under the company reached more than 6,000, ranking among the highest in the industry. The company achieved net profit of 6.24 million yuan to mother in 2024Q1, -88% year-on-year, reversing losses month-on-month. Among them, the net profit of the mass snack business after excluding equity incentive expenses was 117 million yuan, with a net profit margin of 2.5%. The 23Q3 and 23Q4 indicators were 0.21% and 1.64%, respectively. Driven by the scale effect, the profitability of Wanchen Group's mass snack sales business continues to increase.

The mass snack store has plenty of space to open, and the company has sufficient advantages

We estimate that the number of mass selling snack stores nationwide may reach 26,000 in 2023, which is still a certain gap from the industry ceiling of about 50,000 to 60,000. Wanchen Group's snack sales business may be in the dividend period of rapid increase in industry penetration. The key to industry competition is supply chain efficiency and store marketing and operation capabilities. Through early resource paving the way, Wanchen Group has accumulated many advantages in East China, Central China, North China, etc., and is leading in supply chain and warehousing and logistics capabilities. In terms of store marketing and operation, combined with our 27 store visits, Wanchen Group's product updates and iterations are fast, and the shopping experience is excellent. From franchisee disputes to consumer battles, Wan Chen may be able to take the lead.

The target price is 28.67 yuan, maintaining the “gain” rating

We maintain the company's profit forecast for 2024/25/26, and the estimated profit for 2024/25/26 will be $1.90/359/535 million, respectively. Using the segmented valuation method, the company's mass-selling snack business is expected to achieve net profit of 156 million yuan in 24 years, with reference to the average valuation value of 25XPE. Considering that the company's size advantage is expected to continue to show, the company is given a 24-year snack sales business with a market value of 4.68 billion yuan; the company's edible fungus business is expected to achieve net profit of 34 million yuan in 24 years, with reference to the average valuation value of 7.70 XPE for the company. The total target market value is 4.942 billion yuan, corresponding to the target price of 28.67 yuan. Maintain an “Overweight” rating.

Risk warning: Snack store expansion falls short of expectations, price war competition exceeds expectations, single-store model profits deteriorate, etc.