Guotou Securities: Assigns WL DELICIOUS a "Buy-A" rating with a target price of HKD 14.27

According to the Zhitong Finance APP, Guotou Securities has released a research report stating that it gives WL DELICIOUS (09985) a "Buy-A" investment rating, with a 6-month target price of HKD 14.27. In terms of products, the classic spicy strips continue to contribute stable cash flow, while products like konjac snacks and seaweed cater to health demands, with revenue expected to reach 3.37 billion yuan in 2024, accounting for 54%, making it the largest category for the first time; in terms of channels, the foundation in supermarkets and convenience stores is solid, and after going public, there has been a rapid increase in bulk snacks and live e-commerce, with 94 live broadcasts on Douyin in 90 days, and the online proportion continues to rise; in the supply chain, five direct-operated factories in Henan have introduced 5G production lines, which not only reduce costs but also maintain food safety standards. The report states that the spicy strip industry is showing an expansion trend, and the differentiation of product flavors is reshaping the competitive landscape, with WL DELICIOUS's main product, sweet and spicy, leading in scale. From a competitive advantage perspective, 1) WL DELICIOUS has become a high-credit brand in consumers' minds by using automated and transparent factories to improve production efficiency. 2) WL DELICIOUS has formed a differentiated competitive strategy with five major flavor types: sweet and spicy, numbing spicy, fragrant spicy, durian spicy, and regional spicy, continuously innovating and enriching its product matrix. 3) WL DELICIOUS has captured the new social characteristics of spicy strip consumption scenarios, making spicy strips a social currency for young consumers, effectively enhancing user stickiness. 4) The dual-track differentiation strategy in traditional channels strengthens control over distributors, with the number of cooperative distributors increasing to 1,879 in 2024, a year-on-year growth of about 10%; the digital channel "snack wholesale - online platform - O2O" forms a three-track parallel structure, creating a comprehensive advantage. In the future, WL DELICIOUS is expected to continue to expand its leading advantage based on its existing channel advantages and brand power. In addition, konjac products have successfully balanced stimulating flavors with consumers' health needs, and the industry has seen rapid growth in recent years, with a compound annual growth rate of over 20% in the terminal market from 2014 to 2023. WL DELICIOUS has utilized its channel and production capacity advantages to seize consumer mindshare early on. In recent years, WL DELICIOUS has increased its production scale and control over upstream raw materials, further strengthening its profit resilience. Looking ahead, 1) from an industry perspective, the konjac industry is still in the early stages of growth, with vast downstream market space; the plasticity of konjac leaves ample room for flavor innovation processing in the midstream, and the category dividend has not yet peaked. 2) From an enterprise perspective, WL DELICIOUS needs to strengthen flavor research and development horizontally, fully utilize its existing brand influence to promote new flavors, and increase the density of outlets and widen SKUs to lay a solid foundation for maintaining its leading position