Goldman Sachs: Initiates Coverage of WL DELICIOUS (09985) with "Buy" Rating, Target Price of HK$13.9

Goldman Sachs released a research report, covering WL DELICIOUS (09985) for the first time and giving it a buy rating, because the current valuation reflects a good risk-return profile after the stock price retreated 30% from its peak in April. The bank expects the company to achieve a compound annual growth rate of 13% in earnings from 2025 to 2027, while the closest global peer, Calbee, has a same-period compound annual growth rate of 3%. The bank's 12-month target price is HK$13.9, based on a 19 times projected P/E ratio for 2027 and discounted back to 2026 with an equity cost of 8.6%. The report states that WL DELICIOUS is a renowned Chinese snack company, distinguished by its mature nationwide business layout and brand recognition in the seasoning noodle and konjac product sectors. As Oishi dominates 42% of the konjac food market (this category is expected to contribute over 60% of the company's sales in 2025), the main points of contention in the market will revolve around: 1) the stage and pricing impacts of konjac products as competition intensifies; 2) the growth potential of such products given the company's dominant market share in the konjac sector; 3) profit trends influenced by competition, capacity utilization, raw material cycles, and operating leverage effects. The bank acknowledges the increasing competition in konjac products, but after analyzing the following points, it remains optimistic about the company's growth prospects from 2025 to 2027, expecting a compound annual growth rate of 11% in sales and 13% in net profit: 1) smaller companies may be more vulnerable to cost increases and price pressures due to their scale disadvantage; 2) Oishi has a first-mover advantage and can adapt to the intensifying competition with its national coverage and resources; 3) combining Oishi's brand image, insights into konjac products and market, the company has the potential to achieve multiple improvements in consumer penetration, channel expansion, SKU, and flavor. Additionally, the bank believes that Oishi's efforts in automation, capacity utilization improvement, and operating leverage, along with favorable konjac raw material costs, are expected to increase the company's net profit margin from 18.9% in 2025 to 19.5% in 2027.