Wei Long's gross margin recovered in the first half of the year, but operating profit fell 3.3% year-on-year. Vegetable-based products and online direct sales drove revenue growth, while the incremental gross profit was largely absorbed by marketing spending.

On August 13, Wei Long released its interim results for fiscal 2026. In the first half of the year, the company's revenue was 3.715 billion yuan, up 6.7% year-on-year; net profit for the period was 766 million yuan, up 4.0% year-on-year, with a net profit margin declining from 21.1% to 20.6%. Compared to the 18.5% growth in both revenue and profit in the first half of 2025, Wei Long is still growing, but the pace has clearly slowed.

More noteworthy than the change in growth rate is the shift in the profit structure. In the first half, Wei Long's gross margin recovered, but operating profit fell 3.3% year-on-year. Vegetable-based products and online direct sales supported revenue growth, while the incremental gross profit was largely absorbed by marketing spending.

Growth primarily driven by konjac and online direct sales

In the first half, Wei Long's revenue increased by 232 million yuan year-on-year. Among this, revenue from vegetable-based products, including Molo Snacks and Spicy Seaweed, increased by 332 million yuan to 2.441 billion yuan, up 15.8% year-on-year; revenue from seasoned flour products decreased by 129 million yuan, down 9.8% year-on-year. The share of vegetable-based products in total revenue rose from 60.5% to 65.7%, while the share of seasoned flour products fell from 37.6% to 31.8%. This means that without the growth from vegetable-based products, Wei Long's total revenue would have declined.

Huatai Securities research reports further suggest that konjac products are the main driver of the company's revenue growth. The sesame sauce flavor is still being promoted, and the company has reserved three new flavors, expected to be trialed online first. However, Wei Long has not disclosed revenue for sub-categories like konjac and seaweed, so it remains unverified whether the "multi-category" strategy has formed a tiered structure or still relies mainly on a few blockbuster products like Molo Snacks.

Channel changes provided another part of the increment. Online revenue grew 43.8% year-on-year to 483 million yuan, with online direct sales surging 62.4% to 370 million yuan. In terms of incremental contribution, online channels accounted for about 63% of revenue growth, with online direct sales contributing almost all of the online increase. Offline revenue still accounted for 87% of total revenue, but its growth rate was only 2.7%. As of the end of June, Wei Long had 1,637 offline distributors, an increase of just 4 from the end of 2025. Offline growth was not driven by distributor network expansion. Meanwhile, two major customers each contributed about 14% and 13% of revenue, totaling nearly 27%. This concentration of revenue among top clients could also lead to higher pricing pressure.

Incremental gross profit insufficient to cover additional advertising costs

The recovery in gross margin was a positive aspect of this half-year report. In the first half, Wei Long's gross margin rose from 47.2% to 47.8%, and gross profit increased by 133 million yuan. The gross margins for both seasoned flour products and vegetable-based products improved by about 0.5 percentage points, reaching 48.9% and 47.1%, respectively. This improvement cannot be simply attributed to changes in product mix. During the reporting period, the revenue share of vegetable-based products, which have a relatively lower gross margin, rose from 60.5% to 65.7%, which theoretically should have weighed on the overall gross margin. However, Wei Long's overall gross margin still increased, indicating that the improvement occurred mainly within each product category, rather than relying on a higher proportion of high-margin products.

The company attributed the increase in gross margin to supply chain cost reduction and efficiency gains. Huatai Securities research further explains that in the first half, the year-on-year price decline of raw materials like konjac released some profit margin for vegetable-based products. At the same time, rising prices for packaging materials and oils offset some of the cost benefits, pressures that the company digested through economies of scale and cost control.

However, during the same period, selling and distribution expenses increased by 142 million yuan to 669 million yuan, with the expense increment already exceeding the incremental gross profit. Among these, promotion and advertising expenses nearly doubled from 161 million yuan to 307 million yuan. The selling expense ratio rose from 15.1% to 18.0%. As a result, operating profit fell from 949 million yuan to 918 million yuan, a year-on-year decrease of 3.3%; the operating margin declined from 27.2% to 24.7%. In other words, the profit improvement Wei Long achieved in production and procurement in the first half was essentially consumed by brand promotion and channel investments.

Payout ratio rises to nearly 90% – can high returns be sustained?

In contrast to the decline in operating profit, Wei Long significantly increased its shareholder returns. The company proposed an interim and special dividend totaling 0.28 yuan per share, with a total payout of approximately 681 million yuan, equivalent to nearly 90% of the first half's net profit. In comparison, the payout ratio for the first half of 2025 was about 60%. The company also stated that, subject to relevant conditions, annual cash distributions for the years 2026 to 2028 would be no less than 80% of the net profit attributable to the parent company for that year.

Wei Long has the financial foundation to increase dividends. As of the end of June, the company held approximately 7.12 billion yuan in time deposits and cash. After deducting 1.76 billion yuan in borrowings, its "net cash-like" position still exceeded 5.3 billion yuan. Meanwhile, the company's design production capacity increased by 25.2%, but the capacity utilization rate fell from 79.0% to 74.6%. With new capacity yet to be fully absorbed, the necessity of retaining large amounts of cash has decreased, making it reasonable to return more profits to shareholders.

However, high dividends can only enhance shareholders' current returns and cannot substitute for operational improvement. In the first half, Wei Long's operating profit fell by 3.3%, and net profit growth was also aided by higher financing income and lower income tax expenses. The sustainability of future high dividends ultimately depends on whether the core business can consistently generate cash and whether the increased marketing investment can translate into more durable revenue and profit growth.

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