Incident: Wanchen Group released the 24Q1 performance report. The 24Q1 company achieved revenue of 4.83 billion yuan, +534% year over year, and realized net profit of 6.24 million yuan, -88.15% year over year. The apparent net profit to mother declined a lot, and the price of enoki mushrooms, the main product in the mushroom business, fluctuated greatly.

Comment:

Continued rapid growth in the mass snack business indicates business growth. 24Q1's snack sales business reached 4.695 billion yuan (23Q4 was 4.253 billion yuan), falling within the previously forecast range. Continued month-on-month growth in 24Q1 shows the company's business growth and further validates the company's excellent operating ability.

The market questioned the quarterly increase in mass snack revenue due to the slowdown in the company's store opening or the decline in the level of single stores. We expect the same store to increase steadily in 24Q1, and the speed of opening stores in 24Q2/Q3 will accelerate.

As of 24Q1, the company's monetary capital was 1.705 billion yuan, and inventory was 692 million yuan. Inventory declined slightly from the end of '23. Considering the month-on-month increase in 24Q1 revenue, inventory turnover increased month-on-month, indicating high internal operating efficiency within the company.

The month-on-month increase in the profitability of the mass snack business shows operational resilience. Excluding equity incentive fees, the 24Q1 snack sales business achieved a net profit of 117 million yuan, corresponding to a net interest rate of 2.5% (1.8% in 23Q4). Profitability significantly increased month-on-month to further verify the competitive advantage of the mass-selling snack business model and the resilience of the company's internal business operations. The profit and loss of the company's minority shareholders is mainly generated by subsidiaries in the snack volume sales business. According to the corresponding shareholding structure, the net profit attributable to mass sales of snacks was about 2000w, but due to price fluctuations in the mushroom business, the net profit attributable to mother declined significantly over the same period last year.

Profit forecast and investment rating: Looking ahead, mass-selling snacks is a more efficient business format, and the industry is still in a period of rapid horse racing. As the first tier brand in the industry, Wanchen Group's revenue growth and profitability improvements continue to deliver and verify operating capabilities, which can be expected for a long time. We expect the company's 24-26 earnings per share of $0.87, 1.85, and 2.45, maintaining the company's “buy” rating.

Risk factors: Increased competition in regional markets, price wars in the industry, multi-brand operating capacity falls short of expectations, and food safety issues.