Want Want China?
0151.HK - Uncovering a Hidden Gem or Just Another Value Trap
Want Want China (0151.HK): Hidden Gem or a Value Trap?
If you’ve ever snacked on a sweet rice cracker or sipped a childhood nostalgia-filled milk drink, you’ve likely contributed to Want Want China Holdings (0151.HK), a dominant force in China’s snack food and dairy beverage markets. With a 15.3% market share in China’s rice cracker segment and a 6.8% share in flavored milk, Want Want has cemented itself as a household name. The company operates an extensive distribution network, covering over 1.5 million retail points across China. Yet, despite this scale, growth has been underwhelming: revenue has stagnated at around 0-2% CAGR over the past five years, and consumer trends are shifting toward premium and health-conscious alternatives. Is Want Want a value play or a legacy brand past its prime?
From Humble Beginnings: Want Want China Holdings
Founded in 1962, Want Want began as I Lan Foods Industrial Company Limited in Taiwan, initially producing canned agricultural products. The company shifted focus to rice crackers in the 1980s, collaborating with Japan's Iwatsuka Confectionery Company to penetrate the Taiwanese market. In 1992, Want Want expanded into mainland China, establishing its first production plant in Changsha, Hunan, in 1994. By 2008, Want Want China Holdings Ltd. was listed on the Hong Kong Stock Exchange.
Today, Want Want is recognized as one of the largest rice cracker and flavored drink manufacturers globally. Its product portfolio includes rice crackers, dairy products, beverages, and various snack foods. The company's extensive distribution network ensures its products reach consumers across China, contributing to its strong brand recognition.
A Legacy Business Facing New Challenges
Want Want’s core strength lies in its well-entrenched product portfolio. The company owns some of the most recognizable brands in China, particularly in the rice cracker and flavored milk segments. Its distribution network is second to none, with a presence in even the most remote towns. This moat has historically delivered solid margins and steady cash flows.
Its brand identity is deeply rooted in traditional snack offerings, particularly rice crackers and flavored milk beverages. This focus has garnered a loyal customer base, especially among consumers who associate the brand with nostalgic flavors from their childhood. The company's strategy of co-branding with various industries, such as clothing and cosmetics, has also helped maintain its relevance among younger consumers.
Yet, despite its brand equity, growth has been sluggish. The snack industry in China is evolving, with consumers gravitating towards healthier options and international brands gaining traction. Meanwhile, competitors like Mixue capitalize on affordability and rapid expansion, squeezing Want Want from either side. While the company has made attempts to modernize its product lineup, its core offerings still lean heavily on legacy favorites. The question remains: Can Want Want capture the shifting demand, or will it lose relevance to more innovative competitors?
Fundamentals: Value Play or Stagnation?
On paper, Want Want appears attractive for value investors:
Strong Cash Flows – In the fiscal year ending March 31, 2024, the company reported net cash from operating activities of approximately HKD 5.6 billion, indicating robust cash generation capabilities. Want Want generates consistent free cash flow, buoyed by its high-margin products.
Operating Margins – The company's operating margin stood at 19.8% for the same fiscal year, reflecting efficient cost management and a strong pricing strategy.
Return on Invested Capital (ROIC) – Want Want achieved an ROIC of 15.2% in FY2024, suggesting effective utilization of capital to generate returns.
Lower-end price – The stock trades at a forward P/E of around 12x, well below historical consumer staple averages. For example,
Declining Outstanding Shares – Over the past 5 years, the company has re-purchased roughly 3.3% of it’s shares.
A quick look at a comparable company Tingyi Holding Corp (0322.HK), a manufacturer of instant packaged food (ramen) and beverages, offers a relative forward P/E of 16.6, well above that of Want Want.
The downside? Revenue growth has been lackluster. Revenue growth has been relatively flat, with a compound annual growth rate (CAGR) of just 1.5% over the past five years. In a market where premiumization and health-conscious trends are driving growth, Want Want has struggled to reinvent itself at scale.
The Elephant in the Room: China’s Consumer Market
China’s macroeconomic headwinds—slowing growth, weak consumer sentiment, and shifting demographics—pose another challenge. Consumer spending, particularly on discretionary snacks, has been under pressure. While Want Want benefits from its affordability compared to premium brands, stagnating demand in key markets could cap upside potential.
Viewed through an inverted lens, a consumer recovery can provide a strong catalyst to the upside. Nothing appears fundamentally wrong with the _business_, only seemingly temporary environment issues have surfaced, providing an opportunity.
Investment Case: Defensive Play or a Value Trap?
For investors looking for a steady, dividend-paying defensive stock in China’s consumer space, Want Want offers reliability. Combining a 5% dividend yield with no share dilution (and even repurchases in the happy case), a strong brand, and a relatively inexpensive price, Want Want China Holdings (0151.HK) offers stability.
But the lack of meaningful growth catalysts makes it a tricky long-term bet. If management can successfully execute a turnaround – expanding into premium, health-focused products or leveraging digital channels – it could reignite investor interest and a multiple expansion.
Until then, Want Want remains a classic deep-value play: cheap, profitable, but with uncertain long-term growth prospects. The market hates stagnation, but for patient investors, this overlooked snack giant might just offer a sweet risk-reward profile.
Would love to hear your thoughts. Are you bullish or bearish on Want Want? Drop a comment below.