Shanghai Laiyifen Co.,Ltd. (603777.SH) is confronting the most significant operational challenge since its initial public offering. According to the company's 2026 interim report released recently, revenue for the first half stood at RMB 1.812 billion, a year-on-year decline of 6.6%. The net loss attributable to shareholders widened to RMB -92.1305 million, marking the worst first-half profitability figure in its history.

The company is accelerating its transition from directly-operated stores to a franchise model. To support this shift, it invested RMB 50 million last year and plans to inject another RMB 100 million this year as financial assistance to franchisees. Additionally, during the reporting period, the company relaxed credit terms for franchisees, which led to a staggering 2,250.15% year-on-year surge in long-term receivables. As a result of these intertwined factors, the company's operating cash flow turned negative in the first half. The lenient credit policy is eroding cash flow, and combined with expanding losses, the company's financial flexibility has narrowed sharply.

Two Subsidiaries Post Combined Losses of RMB 75.31 Million

In 2025, Shanghai Laiyifen Co.,Ltd. delivered a performance of "increased revenue but reduced profit," attributing the top-line growth to new business channels and incremental revenue from new model operations. However, in 2026, these new channels and models failed to generate additional income. The company has been persistently pursuing a shift from directly-operated to franchise stores. By the end of 2025, total store count reached 2,818, with franchise stores accounting for 1,774, or 63%. By the end of the first half of this year, the total had climbed to 2,968 stores, with franchise stores surging to 2,650, representing 89% of the total. With franchised locations now absolutely dominant, the company has stated it is transforming from a traditional retailer into a chain management service and supply chain platform enterprise. While the increased proportion of franchise stores alleviates the capital pressure associated with the former asset-heavy model, it does not signal a simultaneous recovery in store-level operations.

Examining subsidiary performance, the 2025 interim report listed seven significant subsidiaries and associates, a figure that plummeted to just two in the same period of 2026. On the operational front, the core subsidiary, Laiyifen Convenience Chain, generated revenue of RMB 716 million in the period, nearly 40% of total revenue, but this marked an 18.17% year-on-year decline. Its loss expanded dramatically from RMB 21.0122 million in the year-ago period to RMB 64.1246 million. Another subsidiary, Yiqichuang Supply Chain, posted first-half revenue of RMB 314 million and a net loss of RMB 11.1867 million. Notably, this entity was not on the list of significant subsidiaries in the 2025 annual report; its recent inclusion brings a loss of over ten million yuan, indicating that the supply chain business, which the company has been aggressively expanding, remains in an investment phase. Far from supplementing profitability, it is adding to the overall performance burden. Together, these two subsidiaries recorded a combined loss of approximately RMB 75.3113 million, accounting for over 80% of the total attributable net loss, making them the primary drag on first-half results. Both subsidiaries also reported negative net assets during the period, with Laiyifen Convenience Chain showing net assets of RMB -24.6051 million.

Cash Flow Turns Negative, Receivables Surge Sharply

More concerning than the sales decline is the reversal of operating cash flow from positive to negative. In the first half of 2025, net cash generated from operating activities fell 78.68% year-on-year but remained positive at RMB 22.3954 million. In the first half of this year, however, this figure plummeted to RMB -82.9842 million, a decrease of RMB 105 million, representing a dramatic 470.54% decline. The primary reason for this sharp shift is the continued weakening of the core business's ability to generate cash. In the first half, the company's attributable net loss reached RMB 92.1305 million, a year-on-year increase of 81.77%. The non-recurring-items-excluded attributable net loss, which better reflects true operational performance, widened to RMB 110 million, up 93.43%, indicating that the actual losses from main operations are more severe than the reported figures suggest. The company attributes the cliff-edge drop in profits to weak sales performance and lower gross margins. As the main business continues to bleed, cash inflows from operating activities naturally contract substantially.

Beyond operations, the relaxation of credit policies towards franchisees is the direct catalyst for the negative cash flow. By the end of the period, accounts receivable stood at RMB 65.7338 million, up 51.40% year-on-year, while long-term receivables reached RMB 16.9239 million, a massive 2,250.15% increase. The interim report indicates these spikes are primarily due to increased credit extensions to franchisees. In September 2025 and January 2026, the company also announced financial assistance to franchisees totaling up to RMB 50 million and RMB 100 million respectively. Combined with the lenient credit policies adopted during the reporting period, these actions resemble "generous transfusions" but are, in reality, a strategic maneuver sacrificing short-term finances for long-term model transformation.

From a strategic perspective, Shanghai Laiyifen Co.,Ltd. continues to advance its "Ten Thousand Lights" strategy initiated in 2017. Initially focused on a "nationwide ten-thousand-store layout" with directly-operated stores as the primary driver, the strategy has since shifted. The business model has transitioned from "asset-heavy direct operation" to a "direct + franchise" dual-wheel drive, making franchise stores the core engine of strategic execution. The interim report shows franchise stores now account for nearly 90% of all outlets, indicating the strategic shift from direct to franchise format is essentially complete at the channel structure level. However, the accompanying risks warrant attention. In the first half, credit impairment losses were RMB -3.937 million, expanding 357.04% year-on-year, mainly due to increased bad debt provisions on receivables. In the long term, while the company itself continues to "bleed," if franchisees face operational pressure or widespread defaults, the company would suffer a "double blow" – unable to generate sufficient cash from its core business nor recover externally lent funds. Bad debt losses would simultaneously impact both the income statement and the balance sheet. By the end of the period, the company's cash and cash equivalents balance was RMB 205 million, a decrease of over RMB 100 million compared to the same period last year.