Goldman Sachs has issued a research report initiating coverage on WL DELICIOUS (09985) with a “Buy” rating, citing that, after a 30% decline from its peak in April, the current valuation reflects a favorable risk-return profile. The firm anticipates an average annual compound growth rate of 13% for the company’s earnings from 2025 to 2027, compared to a 3% compound growth rate for its closest global peer, Calbee. The 12-month target price is set at HK$13.90, based on a projected P/E ratio of 19 times for 2027 and discounted back to 2026 using a cost of equity of 8.6%. The report states that WL DELICIOUS is a renowned snack company in China, distinguished by its mature national business layout and brand recognition in the sectors of flavored noodles and konjac products. With a 42% market share in the konjac food sector (which could contribute over 60% to sales in 2025), the firm believes that the main market concerns revolve around: 1) the phases and pricing of konjac products amid intensifying competition; 2) the potential for sales growth of these products, given the company’s dominant market position; and 3) the trend of profitability influenced by competition, capacity utilization, raw material cycles, and operating leverage. The firm acknowledges the increasing competition in the konjac product market but remains optimistic about the company’s growth prospects from 2025 to 2027, forecasting an average annual compound growth rate of 11% for sales and 13% for net profit, due to: 1) small enterprises being more susceptible to cost increases and pricing pressures due to scale disadvantages; 2) WL DELICIOUS having first-mover advantages to adapt to the intensifying competition through nationwide coverage and resources; and 3) the company's brand image and market insights allowing for potential improvements in consumer penetration, channel expansion, SKU, and flavor diversity. Additionally, the firm expects that WL DELICIOUS’s efforts in optimizing automation, increasing capacity utilization, and improving operating leverage, along with favorable raw material costs for konjac, could boost its net profit margin from 18.9% in 2025 to 19.5% by 2027.