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Want Want China Holdings Ltd (SEHK: 151) is a food and beverage company that is well-known for its rice cracker brands Hot Kid and Want Want. Aside from rice crackers, the group also manufactures and distributes dairy products such as milk powder and yogurt drinks, as well as snacks such as roasted seeds and nuts, ice jellies and candy.
Want Want sells mainly in China but also exports to other countries such as Singapore, Hong Kong, Taiwan, and other Southeast Asian countries. With such a wide range of products available and the group’s reach across so many geographic locations, it seems fair to conclude that Want Want is a snack giant.
The group has been introducing new products every year to refresh its product portfolio, and its appeal can be clearly seen in how recognisable its brand is when it comes to rice crackers. However, investors may wish to find out if Want Want is a great business to own. For that, let’s look at several financial ratios and metrics.
Want Want’s gross margin is holding up fairly well, though it has fluctuated between 40% to 50% in the last five years. Note that Want Want changed its financial year-end to 31 March in 2017 and reported 15-months till 31 March 2018 results.
I have, therefore, used the restated 12-months ended 31 March 2018 to make it more comparable, while retaining the full years 2014-2016 with 31 December year-ends.
The gross margin trend shows that the group does enjoy good pricing power and brand loyalty. As snack food and dairy products are essentially commodities, Want Want definitely shows that it has what it takes to attract consumers to purchase its products, as gross margins held steady above 40% all this time.
Operating and net margins have also held fairly steady, above the 20% and around the 15% levels, respectively. This stability is a plus point as it provides investors with peace of mind, knowing that the margins are not going to go off a tangent all of a sudden.
Revenue and profit growth
In terms of growth, Want Want’s performance has been less impressive. Revenue has not displayed any significant growth over the years despite the introduction of new products every year. Operating and net profit has also remained relatively flat over the years, with no discernible growth trends identified.
The conclusion here is that the business is stable and reliable but lacks growth catalysts.
Free cash flows
Moving on to free cash flows (FCF), aside from FY 2014, Want Want has managed to generate consistent levels of FCF every year. This is a positive sign as it shows that investors can rely on the group to generate healthy internal cash flows and not be overly reliant on debt to fund its operations and growth.
Want Want represents a great business to own if you are an investor looking for stability and peace of mind. The group has managed to maintain its margins over the years and also generates consistent levels of FCF.
However, a growth investor may be disappointed by the group’s lack of growth in both revenue and net profit over the past five years.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Hong Kong contributor Royston Yang doesn’t own shares in any companies mentioned.