Goldman Sachs: Initiates WL DELICIOUS with a "Buy" rating and a target price of HKD 13.9

Zhitong
2025.10.17 07:24
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Goldman Sachs initiated coverage on WL DELICIOUS with a "Buy" rating and a target price of HKD 13.9. It is expected that the compound annual growth rates for sales and net profit from 2025 to 2027 will be 11% and 13%, respectively. Despite intensified competition in the konjac product market, Goldman Sachs believes that WL DELICIOUS still has good growth prospects due to its first-mover advantage and brand influence. It is expected that the net profit margin will increase from 18.9% in 2025 to 19.5% in 2027

According to the Zhitong Finance APP, Goldman Sachs has released a research report stating that it has initiated coverage on WL DELICIOUS (09985) with a buy rating, as the stock price has corrected 30% from its peak in April, and the current valuation reflects a good risk-reward ratio. The bank expects the company's average annual compound growth rate in earnings from 2025 to 2027 to be 13%, while the closest global peer, Calbee, has an average annual compound growth rate of 3% during the same period. The bank's 12-month target price is HKD 13.9, based on a 19 times expected price-to-earnings ratio for 2027, discounted back to 2026 at a cost of equity of 8.6%.

The report states that WL DELICIOUS is a well-known snack company in China, distinguished by its mature nationwide business layout and brand recognition in the fields of flavored noodle products and konjac products. As WL DELICIOUS holds a dominant market position with a 42% share in the konjac food sector (which is expected to contribute over 60% to the company's sales in 2025), the bank believes that the main points of contention in the market will revolve around: 1) the stage of konjac products and the impact of pricing amid increasing competition; 2) the growth potential of sales for such products given the company's dominant share in the konjac sector; 3) the trend of profit margins under the influences of competition, capacity utilization, raw material cycles, and operational leverage.

The bank acknowledges the intensifying competition in konjac products, but after analyzing the following points, it remains optimistic about the company's growth prospects from 2025 to 2027, expecting an average annual compound growth rate in sales/net profit to reach 11%/13%: 1) small enterprises are more susceptible to cost increases and price pressures due to their scale disadvantages; 2) WL DELICIOUS enjoys a first-mover advantage and can adapt to the increasingly competitive landscape with its nationwide coverage and resources; 3) combined with WL DELICIOUS's brand image and insights into konjac products and the market, the company has the potential for multiple enhancements in consumer penetration, channel expansion, SKU, and flavor variety. Additionally, the bank believes that WL DELICIOUS's optimization efforts in automation/increasing capacity utilization/operational leverage and favorable konjac raw material costs are expected to drive the company's net profit margin from 18.9% in 2025 to 19.5% in 2027

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