Produced by Radar Finance and Economics, edited by Li Yihui, Deep Sea
Shortly after being removed from the list of underlying securities of the Hong Kong Stock Connect, Weilong Delicious, the "first share of spicy strips", released its 2023 annual report.
During the reporting period, the company achieved a total revenue of about 4.872 billion yuan, a year-on-year increase of 5.2%, and a profit of about 880 million yuan, a year-on-year increase of 481.9%, and the revenue and profit level reached the best level in the past six years, but the increase was limited compared with 2021.
However, there are also hidden concerns behind this achievement. Combing the financial report found that the sales volume of Weilong's main business seasoning noodle products (spicy strips) fell by 17.4%; while the volume fell, the price of Weilong's spicy noodles has been rising, and was even ridiculed by netizens as "spicy noodles are more expensive than meat", calling them unaffordable.
In contrast, the unit price of vegetable products was lowered to 29.6 yuan/kg, and the sales volume increased by more than three percent in the past year, which became an important driving force for the company's performance growth.
Weilong was successfully listed on the Hong Kong stock market in December 2022, with a market capitalization of nearly HK$30 billion at its peak. However, since 2023, the company's share price has gone downward, with a cumulative decline of more than 45% so far, leaving a total market capitalization of about HK$13 billion. According to the Hurun Global Rich List, Weilong's founder Liu Weiping's wealth fell to 11.5 billion yuan from 17 billion yuan in the previous year.
In 2023, Weilong Delicious will significantly increase the dividend ratio, and the total annual dividend may reach 776 million yuan, accounting for nearly 90% of the net profit attributable to the parent company in 2023. However, in the case of high shareholding by major shareholders, about 8% of the dividends may be put into the pocket of the actual controller.
Liu Weiping's fortune has shrunk significantly
Weilong, formerly known as Weilong Food, was founded by Liu Weiping and Liu Fuping in Luohe City, Henan Province.
According to public media reports, Liu Weiping was born in an ordinary family in Pingjiang County, Hunan Province in 1978. Pingjiang County is also the place where spicy noodles were born later.
In 1998, floods in Pingjiang caused serious losses of agricultural products and doubled the price of raw materials for dried soy sauce. In order to reduce costs, the masters of the local dried soy sauce workshop used flour instead of dried tofu to make a cheap gluten snack with a similar taste to the dried soy sauce, which is the prototype of spicy strips.
However, Pingjiang County is located in a mountainous area and is not rich in wheat. As a result, a group of Pingjiang people with a keen sense of smell began to go out of Hunan in search of low-cost flour supplies.
Among them is Liu Weiping, a high school graduate, who took the secret recipe of spicy sauce he learned from Pingjiang and took the 2153 train all the way north to Luohe, Henan Province, where wheat is produced. This "famous Chinese food city" with abundant food resources will provide sufficient raw materials for Liu Weiping's spicy noodles production in the future.
When Liu Weiping ate his first bite of beef tendon noodles locally, he had the inspiration to make spicy noodles in his mind. In the end, after debugging and producing beef gluten noodles with moderate thickness, coupled with Hunan's unique spicy sauce, the first spicy noodles were born.
In 2003, Liu Weiping registered the trademark of "Weilong Weilong" as a brand, and since then, "Spicy Brother Yige" has officially opened its business legend.
It is worth noting that as a food industry that used to be cheap and mainly used by primary school students, the threshold for making spicy noodles is not high, and workshop-style producers abound.
Among the many spicy noodle brands, why did Weilong come into the spotlight? Looking back, this is not unrelated to Weilong's series of differentiated measures.
For example, when peers were still producing in workshops, as early as 2004, Weilong began to introduce industrial production lines, and established internal quality standards and supervision systems.
In addition to paying attention to food safety, another trump card of Weilong is to transform into Internet celebrity products. Through continuous topic marketing, the introduction of celebrity endorsements to upgrade the brand image and other ways to create an Internet celebrity identity. So much so that when it comes to spicy strips, most people only think of the brand "Weilong".
After winning the leading position in the industry, Weilong further opened the road of capital and brought huge wealth to the founder family.
On the 2022 Hurun Global Rich List, Liu Weiping and Liu Fuping both have a wealth of 28 billion yuan, totaling 56 billion yuan. At that time, the wealth of the two brothers was second only to Qin Yinglin of Muyuan and the Ankang family of Hualan Biotechnology, and they both ranked third on the list of the richest people in Henan.
However, Weilong's performance of "listing is the peak" has caused Liu Weiping's wealth to shrink for two consecutive years. On the Hurun Global Rich List in 2023 and 2024, Liu Weiping's wealth will be 17 billion yuan and 11.5 billion yuan respectively, and it will currently shrink by 16.5 billion yuan compared with 2022.
The sales of spicy strips have declined significantly
In the opinion of analysts, the decline in Weilong's delicious stock price is not only due to valuation adjustments, but also due to its own performance.
The valuation of Weilong Delicious has always been the focus of market discussion. According to the 21st Century Business Herald, in the Pre-IPO round of financing in May 2021, Weilong's post-financing valuation exceeded 60 billion yuan.
Wang Chikun, an independent economist, believes that when Weilong started financing in 2021, the secondary market sought after the food industry, which increased the valuation of the secondary market in the food industry, and the enthusiasm of the secondary market drove the funds in the primary market to pursue leisure foods such as Weilong food.
But just a year later, Weilong's valuation is close to "halved". According to media reports, in April 2022, on the eve of the listing, the institutional investors behind Weilong demanded a huge share compensation from Weilong. After compensation, the valuation was reduced to US$5.084 billion, or roughly RMB35 billion.
In the two years after listing, Weilong's market value has further shrunk.
On March 4 this year, the Shenzhen Stock Exchange issued an announcement saying that the list of underlying securities of the Hong Kong Stock Connect has been adjusted and will take effect from now on, among which Weilong Delicious has been transferred out of the list of underlying securities of the Hong Kong Stock Connect. On the same day, the company's share price fluctuated sharply, and as of the close, the stock price was HK$4.81 per share, down 13.8%.
Founder Securities Research Report pointed out: "The low turnover rate of Weilong Delicious since its listing is the reason for the removal of the constituent stocks of the Hang Seng Index, and the company's low liquidity mainly includes two reasons: one is the low proportion of publicly offered shares at the time of listing, and the other is that the main shareholders are optimistic about the company's development prospects and have not reduced their holdings." ”
According to Flush iFinD data, as of June 30, 2023, Hehe Global Capital Co., Ltd., which is ultimately controlled by Liu Weiping and Liu Fuping, holds 1.904 billion shares of Weilong Delicious, with a shareholding ratio of 80.99%.
In terms of performance, in the year of listing, Weilong's performance "changed", with revenue falling by 3.5% year-on-year and net profit falling by 81.7%.
At that time, the Company explained that the significant decline in profit was mainly due to share-based payments related to pre-IPO investments, which were partially offset by an increase in the Group's gross profit.
In 2023, the company achieved a total revenue of approximately RMB4.872 billion, a year-on-year increase of 5.2%, and a profit of approximately RMB880 million, a year-on-year increase of 481.9%.
In the long run, there is a reason for the low base of the previous year to achieve this revenue growth rate, and if compared with 4.8 billion yuan in 2021, there is no significant increase.
In terms of revenue, Weilong's revenue mainly comes from seasoned noodle products (large gluten, small gluten, spicy sticks, small spicy sticks, kiss mouth roast, spicy spicy and domineering pandas), vegetable products (konjac shuang, wind-eaten kelp and little witch), soy products and other products (soft bean skin, 78° braised eggs, etc.).
Among them, seasoned noodle products, that is, all kinds of spicy strips, have always been the company's revenue, accounting for about 6% of the total revenue in previous years.
In 2023, the proportion of revenue from seasoned noodle products will decline to 52.33%, and its output, sales volume, and revenue indicators will all decline significantly compared with the same period in 2022.
According to the financial report, last year, Weilong's sales volume of seasoned noodle products decreased by 17.4% year-on-year from 150,600 tons to 124,400 tons, and its revenue decreased by 6.2% year-on-year from 2.719 billion yuan to 2.549 billion yuan. At the same time, the design capacity, actual output and capacity utilization rate of seasoned noodle products all declined compared with the previous year, and the capacity utilization rate was even as low as 48.3%, that is, more than half of the capacity was idle.
In this regard, Weilong explained in the financial report that the decline in spicy strip revenue is mainly due to the impact of the decline in traffic from offline traditional channels.
What will future growth depend on?
However, if you look closely, the price is rising, or another reason why the spicy strips "can't sell".
In September last year, Weilong launched a new spicy spicy strip "Domineering Panda", which contains Weilong's delicious and youthful brand thinking and hope for helping the inheritance of traditional culture.
But the price of the domineering panda is not cheap, in the flagship store of Tmall Weilong food, the price of Weilong domineering panda spicy strips 576g is 29.9 yuan, which is about 51.9 yuan/kg, and Weilong 65g large gluten spicy strips buy 10 packs of a total of 650g, and the price is 23.9 yuan, which is about 36.77 yuan/kg.
In contrast, as of April 19, the average price of pork in the national agricultural wholesale market was 20.65 yuan/kg, and the price of spicy strips was far more expensive than pork.
Judging from the financial report data, the price increase of Weilong spicy strips is not a one-day achievement. Combined with the prospectus and annual reports of previous years, from 2019 to 2023, the average selling price per kilogram of the company's seasoned noodle products will be 14.3 yuan, 15.0 yuan, 15.1 yuan, 18.1 yuan, and 20.5 yuan respectively, with a cumulative increase of about 43.36% in five years.
In the semi-annual report disclosed in 2023, Weilong once responded to this by saying that the price increase was due to the adjustment of the product structure and the elimination of some low-priced products.
But this move seems to have hurt itself by mistake. Southwest Securities recently pointed out in a research report that the average price of seasoned noodle products has increased by adjusting the product structure, but due to the elimination of some low-price products, sales have declined significantly, resulting in pressure on revenue performance.
The crazy price increase, whether Weilong spicy strips can enter the "high-end market", it is difficult to say at present. After stepping on the brakes on the spicy strip sector, the pillar of revenue, Weilong urgently needs to find new growth categories.
According to the financial report, during the reporting period, the growth effect of Weilong's delicious vegetable products was significant, and the revenue increased by 25.1% from 1.693 billion yuan in the same period of the previous year to 2.119 billion yuan, and the percentage of total revenue increased from 36.6% in the same period of the previous year to 43.5%.
Weilong said that the sales volume of vegetable products increased by 31.1% over the previous year, mainly due to the Group's active exploration of consumer demand for such products and continuous iterative upgrading of such products.
However, behind the increase in sales, the price of vegetable products has dropped from 31.1 yuan/kg in 2022 to 29.6 yuan/kg in 2023.
In addition, Weilong has continued to work marketing and spend a lot of money in recent years. On April Fool's Day this year, Weilong and the Pizza Hut brand jointly launched an April Fool's Day limited new product "Spicy Cheese Chicken Pizza", which will be on sale from March 30 for only 3 days.
In recent years, there have been many such marketing activities, which have also cost Weilong a huge amount of marketing expenses.
Past financial reports show that from 2019 to 2023, Weilong's distribution and sales expenses will be 281 million yuan, 371 million yuan, 521 million yuan, 633 million yuan, and 807 million yuan respectively, accounting for 16.6% of total revenue from 8.3% in 2019. Among them, the cost of advertising and promotion has been invested more than 500 million yuan in the past five years.
However, under the huge investment in sales expenses, the shortcomings of Weilong's online channels are still obvious. According to the financial report, the company's offline channel sales will account for 89.5% in 2023, and the company's dealers will be 1,708 as of the end of the period.
Some industry insiders pointed out that if Weilong wants to achieve performance growth, in addition to product diversification, online channels are also an unavoidable topic. However, the transformation to online will touch the interests of dealers to a certain extent, which also makes Weilong's online transformation challenging.