Chinese spicy snacks giant Weilong sees first-half profit rise amid slow economy

Weilong Delicious Global Holdings, which makes popular Chinese spicy snacks, is expected to attract increased investor attention on the back of an anticipated first-half profit surge, as consumers opt for more affordable items in a slowing economy.

Based in Luohe, in central Henan province, Weilong said first-half net profit is likely to jump 34 per cent to 39 per cent year on year for estimated earnings of between 599.1 million yuan (US$82.8 million) and 621.5 million yuan, according to the company’s filing to the Hong Kong stock exchange on Thursday.

That projected profit growth stems from its “omnichannel construction and brand building”, which boosted revenue growth online and offline, according to Weilong. It added that a decline in raw material costs also bolstered its gross profit margin.

“We think that snacks’ lower ticket size and higher frequency of purchase could provide a degree of ‘small happiness’ amid a cold macro environment,” Morgan Stanley analysts wrote in a note on Friday.

The optimistic forecast shows how snacks are portrayed as more resilient, outperforming other products in the consumer staples category, as consumption slows in the world’s second-largest economy.

“When consumers are uncertain about their financial prospects or hold a pessimistic view of the economy, they tend to … reduce spending on clothing and other non-essential items because they feel that their existing items suffice,” analysts at McKinsey & Co wrote in a recent report.

An uncertain economic outlook has also led many consumers to prioritise value and quality in their purchases, while others have shifted their attention towards experience-led consumption, favouring experiences over physical products, according to the report.

China recorded a lower-than-expected 4.7 per cent economic growth in the second quarter, hindered by weak consumption and declining property investment. Consumer prices also missed expectations, inching up 0.2 per cent year on year in June.

The sluggish growth has begun to weigh on luxury brands such as LVMH and Chow Tai Fook, as consumers on the mainland tighten their belts amid economic uncertainty. LVMH, the world’s largest luxury group, on Tuesday said sales growth in China slowed to 1 per cent in the second quarter, compared with a 3 per cent increase year on year in the previous quarter.

A report by Morgan Stanley described Weilong as “well on track” to meet its growth targets, with a 22 per cent sales growth and 23 per cent net profit growth in the first half of this year.

“We see improving execution from Weilong, and we think that its strong brand equity and rapidly growing vegetable products could sustain good growth in the next 12 months,” the Morgan Stanley report said.

Swiss bank UBS, meanwhile, expected Weilong’s revenue to rise by more than 20 per cent in the second quarter, as costs in key agricultural products and packaging materials were trending down.

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