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According to the Red Star Capital Bureau on August 18, the 2024 interim performance report released by Weilong Delicious (09985.HK) recently showed that in the first half of this year, Weilong’s total revenue was 2.939 billion yuan, a year-on-year increase of 26.3%; net profit was 621 million yuan, a year-on-year increase of 38.9%.

Among them, the revenue of vegetable noodle products reached 1.461 billion yuan, surpassing the revenue of seasoned noodle products for the first time, with the latter's revenue of 1.354 billion yuan. Is there a trend of "de-spicy noodles" in Weilong? The relevant person in charge of Weilong told the Red Star Capital Bureau that spicy noodles are still one of Weilong's core businesses and there is still room for growth; the proportion of vegetable products is gradually increasing because the company attaches great importance to long-term development and hopes to enhance its risk resistance through a balanced operating structure.

The picture shows Weilong product information. Image courtesy of Visual China

Vegetable product revenue surpasses spicy strips for the first time

Is Weilong going to “de-spicy strips”?

Weilong's semi-annual report shows that during the reporting period, the revenue of seasoned noodle products was 1.354 billion yuan, accounting for 46.1% of the total revenue; in the same period last year, the company's revenue of seasoned noodle products was 1.289 billion yuan, accounting for 55.4%. Weilong said that the growth in revenue from seasoned noodle products was mainly due to the advancement of omni-channel construction, and the decline in the proportion of seasoned noodle products reflected the company's more balanced development of product categories. The announcement shows that Weilong's seasoned noodle products mainly include large gluten, small gluten, spicy sticks, small spicy sticks, kiss burn, spicy spicy and crispy fire, etc.

In the first half of this year, Weilong's vegetable product revenue increased by 56.6% from 933 million yuan in the same period last year to 1.461 billion yuan, and the proportion of total revenue increased from 40.1% last year to 49.7%. Weilong said that this was mainly due to the company's continuous iteration of such products, continuous expansion of such product production capacity, and continuous strengthening of omni-channel construction and brand building. The announcement shows that the company's vegetable products mainly include Konjac Shuang, Fengchi Kelp and Little Witch.

Cao Zhe, chief investment officer of Beijing Aiwen Zhilue Investment Management Co., Ltd., told Red Star Capital Bureau that judging from the semi-annual report, Weilong is gradually adjusting its product line, reducing the proportion of spicy strips, and seeking new growth points. Bai Wenxi, vice chairman of the China Enterprise Capital Alliance, also believes that Weilong is diversifying its product line and reducing its dependence on spicy strips.

Is there a trend of "de-spicy strips" in Weilong? On August 16, a relevant person in charge of Weilong told Red Star Capital that spicy strips are still one of Weilong's core businesses. "Although the growth rate of spicy strips has slowed down now, it does not mean that there is no room for growth." The person in charge said that when Weilong optimizes the company's various sectors, such as expanding channels and optimizing distribution models, spicy strips will have a certain room for growth. The person in charge also mentioned that there is also room for development overseas, and Weilong can go overseas to find growth.

Regarding the increasing proportion of vegetable products, the above-mentioned person in charge of Weilong said that consumers' demand for snacks has changed, and they prefer low-fat and healthy categories. Konjac Shuang stands at the forefront of this trend, using low-calorie, low-fat, and high-fiber materials. "Consumer choice is the biggest trend in the entire industry, and the entire Konjac Shuang market is also slowly growing."

The Weilong official also said that the company was previously criticized for being overly dependent on a single product. After going public, the company has focused on long-term development and hopes to enhance its risk resistance by having a balanced business structure. "For the capital market, if there is an excessive bias towards a certain category, investors' confidence in the company's long-term development will decline." The official said that if the business structure is balanced, the company will not affect the revenue of the entire group due to the sudden decline of a certain category.

In addition, during the reporting period, Weilong's soy products and other products had a revenue of 124 million yuan, accounting for 4.2% of the total revenue, a slight decline from 4.5% in the same period last year. The announcement showed that soy products and other products mainly include spicy bean curd skin, soft-boiled eggs, etc.

Last year, both the revenue and sales volume of spicy strips declined

Weilong accelerates the launch of new products

In 2023, Weilong saw a decline in both revenue and sales of spicy strips. The above-mentioned person in charge of Weilong said that the epidemic has had a great impact on the fast-moving consumer goods industry. In the past two years, there have been many emerging snack brands. Consumers also want to try more. The entire spicy strip industry has not innovated for too long. "Before 2023, we were slow to launch new products. The group worked hard to make strategic adjustments. Starting in the second half of 2023, we launched new products quickly, which contributed to the sales growth." The person in charge said.

In terms of taste, Weilong used to be known for its sweet and spicy flavors, but later launched a variety of flavors, including sour and spicy, spicy, Sichuan spicy, and Guizhou hot peppers. In September 2023, Weilong launched a new Sichuan spicy product, "Badao Panda" spicy strips. In December 2023, Weilong launched a new category, "Crispy Fire" spicy crispy slices. In June this year, Weilong also launched a new product, durian spicy strips.

The above-mentioned person in charge of Weilong said that when Weilong was making spicy strips in the early years, consumers across the country were not so accepting of spicy food, so Weilong spicy strips were mainly mildly spicy and fragrantly spicy. "In the past two years, Sichuan cuisine and hot pot have become popular all over the country. Consumers have been influenced and educated by the catering industry, and those places that did not eat spicy food before are now slowly starting to eat spicy food." The person in charge said that these new spicy products launched by Weilong are all in line with consumer demand.

However, the above-mentioned person in charge of Weilong said that some of the new products launched were relatively expensive, which made Weilong seem to have increased its prices. From the financial data, from 2019 to 2023, the average selling price per kilogram of Weilong's seasoned noodles was 14.3 yuan, 15.0 yuan, 15.1 yuan, 18.1 yuan, and 20.5 yuan respectively. The person in charge explained that during the development process, the company cut off a large number of low-priced products, and some marketing models launched had higher costs than regular models, so on average it seemed to have increased.

Cao Zhe said that with the change of people's dietary concepts and the diversification of market demand, the spicy strips market has become saturated. For some consumers, the choice space has become larger, and Weilong spicy strips are no longer the best choice. In addition, many brands are constantly launching new flavors and products, resulting in a decrease in consumer loyalty to Weilong spicy strips. Cao Zhe said that Weilong can continue to innovate and launch new products to attract young consumers, and can also strengthen production quality control and product testing to improve product quality and reputation.

Bai Wenxi said that as consumer tastes change, sweet and spicy spicy strips may no longer be favored by young people; the spicy strips industry is highly competitive, and new entrants have also affected Weilong's market share. Bai Wenxi believes that Weilong can enhance its brand image by strengthening brand building and marketing activities, while maintaining the cost-effectiveness of its products by optimizing cost structure and improving operational efficiency to attract price-sensitive consumers.

Red Star News reporter Yu Yao, intern reporter Zeng Han

Editor: Yang Cheng