Most people outside China have probably never heard of Want Want. Upon learning that the company specializes in rice crackers, dairy products, and snacks, many may not find it particularly exciting. However, that could be a mistake, as the company has historically delivered strong execution and still has significant room for growth. In this analysis, we will explore whether Want Want is a good investment.
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The Business
Want Want China Holdings Ltd is a prominent food manufacturing and distribution company with a rich history dating back to its founding in Taiwan. Over the years, it has grown into one of the leading producers of rice crackers, dairy products, beverages, and various snack foods. Most of its operations are based in mainland China, where the company has established a robust nationwide sales and distribution network to ensure its products reach consumers across the country. Additionally, Want Want exports its products to markets in North America, East Asia, Southeast Asia, and Europe, reflecting its global reach and appeal. Want Want operates 420 sales offices, 34 production bases, and 76 factories in mainland China, collaborating with over 10,000 distributors. This extensive logistical and operational infrastructure underscores the company’s remarkable ability to penetrate diverse markets effectively. Over the years, Want Want has become a household name, appealing to multiple generations, from those born in the 1960s and 1970s to today’s younger consumers. This widespread recognition highlights the brand’s adaptability and enduring relevance across different eras, making it a cherished part of many consumers’ lives. The company’s product portfolio is both diverse and balanced. Rice crackers and snack foods contribute 49% of its revenue, while dairy products and beverages account for the remaining 51%. Want Want employs various sales strategies to reach its consumers, primarily selling its products to distributors who then deliver them to retail points. The company also partners directly with modern retailers and utilizes emerging channels, including online platforms and social media, to connect with consumers more effectively. One of Want Want’s significant moats lies in its brand strength, built over decades of consistent quality and innovation. Its products are deeply ingrained in the culture of its consumers, creating strong emotional and generational ties. This brand loyalty, coupled with its vast distribution network, ensures a wide-reaching presence in both urban and rural markets. Want Want’s offerings are varied and cater to a wide range of consumer preferences. The rice crackers segment includes sugar-coated crackers, savory crackers, and gift packs. The dairy products and beverages segment features flavored milk, yogurt drinks, coffee, herbal teas, and juices. Its snack food segment includes candies, jellies, popsicles, and nut-based snacks, while its other products encompass wine and miscellaneous offerings.
Management
Tsai Eng-meng is the chairman and CEO of Want Want. He assumed leadership of the company at the young age of 19, succeeding his father, Jonathan Shuai Qiang Ng, who founded the business. Under Tsai’s vision and direction, Want Want transformed from its original focus on canned agricultural products into a diversified enterprise specializing in rice crackers, snack foods, dairy products, and beverages. This strategic pivot positioned Want Want as one of the largest rice cracker and flavored drink manufacturers globally, solidifying its reputation as a household name. Tsai's leadership has been pivotal in Want Want's remarkable growth and diversification, enabling the company to thrive in the competitive food industry. His ability to identify market opportunities and drive innovation has been a cornerstone of the company’s sustained success. Reflecting his entrepreneurial mindset, Tsai has said, “No matter how difficult the situation is, there are always opportunities in the market.” This philosophy underscores his approach to overcoming challenges and turning them into avenues for growth. Under Tsai’s leadership, Want Want has evolved into a globally recognized brand, blending deep cultural roots with forward-thinking business strategies. His commitment to innovation and strategic vision have not only shaped the company’s legacy but also ensured its continued relevance and competitive edge in an ever-changing market landscape.
The Numbers
The first metric to investigate is the return on invested capital (ROIC). Our criterion requires a 10-year history with all figures exceeding 10% annually. Unfortunately, Finbox does not provide data for all ten years, but the figures from the past five years are available and still provide valuable insights. Want Want has consistently achieved a high ROIC over the past five years, as well as in 2016, which is the only year for which we have data between 2015 and 2019. This consistent high ROIC highlights that Want Want is a quality company. Notably, the company achieved its highest ROIC in fiscal year 2024, which is an encouraging sign. While the company does not explicitly mention ROIC in its financial publications, I believe Want Want will continue to deliver strong ROIC figures, particularly as macroeconomic conditions in China improve. This performance underscores Want Want’s ability to generate significant returns on its invested capital, reinforcing its position as a compelling investment opportunity.
The following numbers represent the book value + dividend. In my previous format, this was referred to as the equity growth rate. It was the most important of the four growth rates I used in my analyses, which is why I will continue to use it in the future. As you are accustomed to seeing numbers in percentage form, I have decided to provide both the actual numbers and the year-over-year percentage growth. Unfortunately, Finbox does not have data for 2017. Want Want's equity has been volatile over the years, with some years showing increases and others decreases. The company does not explicitly address equity in its financial publications, but such volatility is not uncommon, especially given the macroeconomic challenges China has faced since the pandemic. These factors likely explain why Want Want has reported lower equity in four of the past five years. It is worth noting, however, that equity increased year over year in fiscal year 2024, though it has not yet returned to previous highs. I believe equity will become more stable as the Chinese economy improves, providing a stronger foundation for Want Want's future growth.
Finally, we will analyze the free cash flow. Free cash flow, in short, refers to the cash that a company generates after covering its operating expenses and capital expenditures. I use levered free cash flow margin because I believe that margins provide a better understanding of the numbers. Free cash flow yield refers to the amount of free cash flow per share that a company is expected to generate in relation to its market value per share. We have data for nine of the past ten years, as Finbox does not provide figures for 2017. It is not surprising that Want Want has delivered positive free cash flow in all nine years. While free cash flow has been affected by macroeconomic factors over the past three years, it is encouraging that the company achieved its highest free cash flow in this period during fiscal year 2024, even though it has not yet returned to the levels of fiscal year 2021. The levered free cash flow margin also improved in fiscal year 2024, reaching an impressive 20%. I believe both free cash flow and the levered free cash flow margin will continue to rise as the Chinese economy improves. The free cash flow yield is at its second-highest level in the past 10 years, suggesting that the stock is trading at an attractive valuation. However, we will revisit valuation later in the analysis.
Debt
Another important aspect to consider is debt. It is crucial to assess whether a business has a manageable level of debt that can be repaid within three years, calculated by dividing total long-term debt by earnings. Upon analyzing Want Want's financials, it is clear that the company currently has no debt, which is something I like. In recent years, Want Want has prioritized paying off its debt, resulting in earnings now exceeding long-term debt. It is also worth noting that the long-term debt is at its second-lowest level in the past ten years, which is very encouraging. This financial discipline strengthens Want Want's position and provides greater flexibility for future growth opportunities.
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Risks
Market risk poses a significant challenge for Want Want, as its success relies heavily on maintaining strong consumer demand for its products in an increasingly competitive and dynamic industry. As consumer preferences evolve, there is a risk that certain product categories - such as rice crackers or flavored beverages - could lose popularity or fail to resonate with newer generations of consumers. For instance, shifts toward healthier eating habits, rising awareness of sustainability, or trends favoring fresh and organic foods could reduce demand for some of Want Want’s traditional offerings. Increased competition further heightens this pressure. Both domestic and international brands operating in the same product categories may introduce innovative offerings, more competitive pricing, or superior marketing campaigns, potentially drawing market share away from Want Want. This is especially relevant in mainland China, where consumers have abundant choices from both local and global brands in the snack and beverage segments. Additionally, newer distribution channels, such as e-commerce platforms and direct-to-consumer brands, have intensified competition, challenging traditional players like Want Want to maintain their dominance. If Want Want cannot adapt quickly by diversifying its product range, innovating to align with changing consumer preferences, or strengthening its competitive edge, it risks losing relevance, which could result in lower revenue and reduced profit margins. Balancing its iconic products, which hold generational appeal, with modern, health-conscious, or premium offerings will be crucial for mitigating this market risk and ensuring long-term success.
Political and economic risk is a significant concern for Want Want due to its substantial operations in mainland China and Taiwan, two regions with a complex and often tense geopolitical relationship. These tensions create uncertainty for businesses operating in or reliant on both markets. Any escalation in political conflict - such as trade restrictions, sanctions, or even a military standoff - could disrupt Want Want's supply chains, manufacturing operations, or access to key markets. Such scenarios might also lead to increased costs for raw materials or distribution, adversely affecting profitability. If mainland China were to enact stricter regulations on consumer goods, increase tariffs, or alter foreign exchange policies, it could directly impact Want Want’s ability to maintain margins or manage its financial exposure. Similarly, economic shifts such as slower GDP growth, rising inflation, or changes in consumer spending power could reduce demand for discretionary products like snacks and beverages, particularly in rural or economically vulnerable areas. Additionally, investor sentiment can be heavily influenced by these geopolitical and economic risks. Perceptions of instability or policy unpredictability could result in lower valuations, reduced foreign investment, or challenges in accessing capital markets.
Reputational risk is a significant concern for Want Want, as its success as a consumer-focused company depends on maintaining trust and loyalty among its customers. The brand’s long-standing appeal, built over decades, is a key competitive advantage, but this reputation is inherently fragile. Any negative publicity - such as issues related to product quality, safety, or unethical practices - could erode the trust that consumers place in the company, leading to both immediate and long-term consequences for sales and brand equity. For example, a product recall due to contamination or safety concerns could not only result in financial losses from the recall process but also damage the perception of Want Want’s commitment to quality. Similarly, allegations of using harmful ingredients, failing to meet regulatory standards, or engaging in unethical labor practices could spark widespread negative media coverage. In the digital age, such stories can quickly gain traction on social media, amplifying their impact. This can deter consumers from purchasing Want Want’s products, strain partnerships with distributors and retailers, and invite regulatory scrutiny. Reputational damage could also have a cascading effect on investor confidence. A tarnished image might result in reduced valuation, slower sales growth, and challenges in maintaining or expanding market share. For a company like Want Want, which relies heavily on its generational appeal and iconic status, rebuilding consumer trust after a significant reputational setback could take years and require substantial investments in marketing, public relations, and operational reforms.
Reasons to invest
New products are a compelling reason to consider investing in Want Want, as they highlight the company's commitment to innovation, adaptability to consumer trends, and its ability to drive sustainable revenue growth. Want Want has consistently invested in research and development, with products launched over the past five years contributing a significant double-digit percentage to the Group's total revenue in FY2023. This demonstrates the company’s ability to develop offerings that align with evolving consumer preferences while maintaining a diversified and modernized portfolio. The dairy products and beverages segment grew 7.4% year-on-year, underscoring the success of these new product launches, along with the record-breaking performance of the candies sub-category. Notable examples include the "Little Rice Crunch", which appeals to health-conscious, younger demographics such as white-collar professionals and Generation Z, and the revival of the "56 Ethnic Group Can" series of Hot-Kid Milk, which has effectively leveraged nostalgia and consumer engagement to drive repeat purchases. These examples showcase Want Want’s ability to balance emerging trends with traditional brand loyalty, ensuring sustained market relevance. The company’s strategy of introducing differentiated products tailored to various consumption scenarios has further bolstered its growth. By designing products for specific retail formats and consumer needs - such as the portable "Daily Milk" series for convenience stores and bulk-sized snacks for supermarkets - Want Want has effectively expanded its market reach and consumer base. Additionally, health-focused offerings like the "Fix XBody" brand and the spicy snack line "Mr. Hot" demonstrate the company’s responsiveness to diverse consumer demands, enhancing its competitive edge.
Focusing on vending machines as a growth driver provides a clear and compelling reason to consider investing in Want Want. The company has achieved double-digit revenue growth in this channel, driven by the introduction of smart vending machines that improve the accessibility and visibility of its products. This innovation particularly benefits categories such as rice crackers and snack foods, which are well-suited for quick, on-the-go purchases. Vending machines represent a strategic response to shifting consumer behavior, especially in urban areas where convenience and speed are highly valued. By deploying smart vending machines, Want Want has tapped into new consumer segments and created additional sales opportunities outside traditional retail settings. These machines not only extend the company’s reach into high-traffic locations but also reduce its reliance on conventional distribution channels, creating a more diversified and resilient revenue base. Looking ahead, Want Want plans to further expand its vending machine network by increasing investments in its proprietary machines and strengthening partnerships with distributors. This strategy will enhance the coverage of points of sale, ensuring the brand's presence in untapped markets and non-traditional locations, and positioning the company for sustained growth in this channel.
Overseas markets represent a significant growth opportunity and a compelling reason to consider investing in Want Want, as the company steadily expands its presence beyond China. By establishing subsidiaries in key regions such as Vietnam, Thailand, Indonesia, Germany, and North America, Want Want is strategically positioning itself to tap into diverse and growing consumer bases across Asia, the Americas, Oceania, and Europe. In FY2023, overseas revenue grew at a mid-to-high teen rate, reflecting the success of these efforts. Want Want’s strategic approach to overseas markets involves tailoring its business models and marketing strategies to suit the unique characteristics of different regions. This localized approach has enabled the company to effectively connect with consumers in diverse markets. For example, through innovative campaigns such as short videos on TikTok, seasonal pop-up stores, and in-store food tasting events, Want Want has enhanced brand recognition and product visibility, driving its growing success abroad. The commencement of production at the new factory in Vietnam further underscores Want Want’s commitment to expanding its footprint in Southeast Asia, a region with significant growth potential. This facility not only strengthens the company’s supply chain but also positions Want Want to better serve local consumers with region-specific products while reducing logistical costs. The company’s ability to replicate its success in China through a localized yet scalable strategy is evident in the progress of its candy product segment, which has seen notable growth in overseas markets. By leveraging its diversified product range and strong production capacity, Want Want is well-positioned to capture an increasing share of international markets, making its overseas expansion a key driver of future growth.
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Valuation
Now it is time to calculate the share price. I perform three different calculations that I learned at a Phil Town seminar. If you want to make the calculations yourself for this or other stocks, you can do so through the tools page on my website, where you have access to all three calculators.
The first is called the Margin of Safety price, which is calculated based on earnings per share (EPS), estimated future EPS growth, and estimated future price-to-earnings ratio (P/E). The minimum acceptable rate of return is 15%. I chose to use an EPS of 0,36, which is from 2024. I have selected a projected future EPS growth rate of 5%. Finbox expects EPS to grow by 4,6% a year in the next five years. Additionally, I have selected a projected future P/E ratio of 10, which is twice the growth rate. This decision is based on Want Want's historically higher price-to-earnings (P/E) ratio. Finally, our minimum acceptable rate of return has already been established at 15%. After performing the calculations, we determined the sticker price (also known as fair value or intrinsic value) to be HKD 1,45. We want to have a margin of safety of 50%, so we will divide it by 2. This means that we want to buy Want Want at a price of HDK 0,72 (or lower, obviously) if we use the Margin of Safety price.
The second calculation is known as the Ten Cap price. The rate of return that a company owner (or stockholder) receives on the purchase price of the company essentially represents its return on investment. The minimum annual return should be at least 10%, which I calculate as follows: The operating cash flow last year was 5.583, and capital expenditures were 474. I attempted to analyze their annual report to calculate the percentage of capital expenditures allocated to maintenance. I couldn't find it, but as a rule of thumb, you can expect that 70% of the capital expenditures will be allocated to maintenance purposes. This means that we will use 332 in our calculations. The tax provision was 1.541. We have 11.812 outstanding shares. Hence, the calculation will be as follows: (5.583 – 332 + 1.541) / 11.812 x 10 = HKD 5,75 in Ten Cap price.
The final calculation is called the Payback Time price. It is a calculation based on the free cash flow per share. With Want Want's Free Cash Flow Per Share at HKD 0,43 and a growth rate of 5%, if you want to recoup your investment in 8 years, the Payback Time price is HKD 4,31.
Conclusion
I believe Want Want is an intriguing company because it offers a way to invest in a consumer staple in China. The company has a strong moat through its well-established brands, recognized and trusted across generations in China and Taiwan. While we lack data for the past ten years, it is clear that Want Want consistently delivers a high ROIC and a solid levered free cash flow margin. Market risk is a concern for Want Want because its success depends on maintaining strong consumer demand in an increasingly competitive industry. Evolving consumer preferences, such as shifts toward healthier or more sustainable options, could reduce the appeal of its traditional products. Additionally, intensified competition from both local and global brands poses a threat to its market share and profitability. Political and economic risk poses a challenge due to Want Want's significant operations in mainland China and Taiwan, regions with geopolitical tensions that could disrupt supply chains, manufacturing, and market access. Stricter regulations, tariffs, or economic shifts like slower growth or reduced consumer spending could also impact profitability, while perceived instability may harm investor confidence and valuations. Reputational risk is a critical concern as Want Want’s success relies on consumer trust and loyalty, which could be easily undermined by negative publicity related to product quality, safety, or unethical practices. Such incidents could lead to long-term damage to sales, brand equity, and investor confidence. New products are a key reason to invest in Want Want, as they showcase the company’s innovation and adaptability to evolving consumer trends. Recent launches have significantly contributed to revenue growth, demonstrating Want Want’s ability to modernize its portfolio and resonate with consumers. Focusing on vending machines is another strong reason to invest in Want Want. This channel has driven double-digit revenue growth by leveraging smart vending machines to increase product accessibility and visibility. This strategy captures new consumer segments in high-traffic and untapped locations while diversifying revenue streams and reducing reliance on traditional retail channels. Overseas markets represent a compelling reason to invest, as Want Want is achieving strong growth by expanding into key regions like Southeast Asia, North America, and Europe. The company’s localized strategies and investments in production capacity, such as its new factory in Vietnam, position it well to capture the growing demand in these regions. Although I find Want Want appealing, I do not plan to make it a significant investment due to the higher risks associated with investing in China. However, I may open a small position if the stock trades below the Payback Time price of HKD 4.31, which would also provide a dividend yield of approximately 6%.
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