Goldman Sachs Reiterates Buy on Busy Ming/Wanchen, Views Subsidy Competition Impact as Manageable

Overview

This report addresses investor concerns regarding intensified franchisee subsidy competition among Chinese value retailers—primarily Busy Ming Group and Wanchen Food—in select regions. Goldman Sachs argues that while share prices have corrected due to these worries, the market has overreacted to potential earnings risks. Through detailed analysis of subsidy policy characteristics, earnings sensitivity testing, and feedback from brand partners, the report demonstrates that current competition is rational and localized, with significant long-term growth potential intact. Hence, Buy ratings on both companies are reaffirmed.

Core views

Nature of Competition and Strategic Evolution: Goldman Sachs notes that current subsidy competition differs from the broad expansion seen in 2024, now characterized by 'one-store-one-policy,' regional focus, and strict approval processes. Busy Ming concentrates mainly in its core Central and South China markets, while Wanchen focuses on selected regions like Shaanxi. These measures are viewed as defensive tools to prevent irrational oversaturation by competitors—not uncontrolled price wars. Historically, the industry has progressed through three phases: rapid expansion in 2024 (high subsidies), consolidation in 2025 (reduced subsidies, emphasis on store-level quality), and rational strategic competition from 2026 onward. Earnings Impact and Sensitivity Testing: The report maintains unchanged 2026 earnings forecasts, expecting Busy Ming to open 5,100 new stores and Wanchen 6,500, with gross margins expanding by 0.43 ppt and 1.0 ppt respectively. Sensitivity analysis assumes an additional 0–1,200 stores opened in 2026 with average per-store subsidies rising to RMB50,000–70,000. Under this scenario, gross margin dilution caps are 0.3 ppt for Busy Ming and 0.4 ppt for Wanchen, with adjusted net profit growth drag capped at 3.0% and 4.1% respectively. Even under more extreme assumptions (30–70% of new stores directly competing, with extra subsidies of RMB40,000–80,000), the maximum net profit growth drag remains only 5%–7%, which is manageable given their projected high growth rates of 52% and 90%. Brand Partner Perspectives and Value Chain Restructuring: FMCG brands increasingly view value retailers as critical growth vectors amid weak consumer sentiment. Partnerships not only drive significant sales uplift (e.g., Weilong and Yanjin Puzi reporting high growth in discount channels) but also foster co-developed SKUs (approximately 34% of Busy Ming’s SKUs are co-developed). Although unit prices are lower, brands achieve better operating margins in value retail channels versus traditional supermarkets by eliminating intermediaries, improving inventory turnover, and shortening payment terms. Brands also protect their existing distribution systems through product size differentiation (e.g., smaller packs) and strict minimum pricing policies. Valuation and Catalysts: Following recent corrections, Busy Ming and Wanchen trade at 17x and 14x their 2026E P/E multiples respectively, offering attractive risk-reward profiles. Key catalysts include Busy Ming’s announced inclusion in the Hang Seng Composite Index on May 22, 2026 (a prerequisite for Stock Connect eligibility); expected strong H1/Q2 results showcasing robust new store rollouts and margin expansion from economies of scale; and GMV per store growth driven by category expansion.

Analysis framework

Goldman Sachs employs an integrated analytical framework combining 'policy interpretation – quantitative modeling – supply chain validation.' First, channel checks distinguish the current subsidy policy from historical cycles, qualitatively assessing the rationality of competition. Second, detailed financial sensitivity models quantify the impact of varying store rollout speeds and subsidy levels on gross margins, net margins, and net profits—addressing market fears of earnings erosion with data. Finally, insights from upstream brand partners (e.g., Master Kong, Uni-President, Mengniu) validate the structural opportunity in value retail from a value-chain restructuring perspective, supporting the long-term growth thesis.

Methodology notes

• Industry/ Sector Analysis FrameworkSupply-demand framework

  Analyzing industry dynamics by differentiating supply-side factors (store expansion, subsidy strategies) from demand-side potential (Total Addressable Market [TAM], category penetration).

  The report notes that although short-term supply-side (store) competition is intense, the demand side—the RMB4 trillion snack and beverage market—still offers vast untapped penetration potential. Thus, increased supply will not lead to long-term destructive competition but instead accelerate market consolidation.

• Company Fundamentals & Financial FrameworkOperating/Financial Leverage Analysis

  Examining how economies of scale improve gross and net margins through enhanced bargaining power and operational efficiency as store counts grow.

  Despite subsidy expenses, both companies achieved gross margin expansion in 2024, demonstrating that scale effects and stronger supplier negotiation can offset competitive costs—a key pillar in assessing earnings resilience.

• Valuation MethodologyPE/PEG valuation

  Using target P/E multiples combined with forward EPS estimates for valuation, benchmarked against global peers.

  Goldman Sachs assigns Busy Ming a 23x 2027E P/E and Wanchen a 21.5x 2027E P/E, referencing global value retail leaders like Dollar General/Tree (U.S.) and Don Quijote (Japan), reflecting a cross-market relative valuation approach.

• Event Arbitrage & Behavioral FinanceExpectation Gap / Expectation Management

  Identifying the gap between market sentiment (fear of subsidy wars) and actual fundamentals (rational competition, resilient earnings).

  The core purpose of the report is to correct overly pessimistic investor expectations by demonstrating through data that feared 'earnings risks are exaggerated,' thereby uncovering investment opportunities after the share price correction.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Busy Ming Group (1768.HK)

  Beneficiary: As the industry leader, it consolidates its position in Central/South China through rational competition; inclusion in the Hang Seng Composite Index provides near-term funding tailwinds.

  Strengths

  Strong GMV per store growth potential, robust category expansion capability, high co-developed SKU ratio (34%).

  Comparison

  Trades at a slight premium to Wanchen (17x vs. 14x P/E), reflecting faster network expansion momentum and superior unit economics.

  Risks

  Intensified competition leading to higher price investments; excessive network density causing cannibalization.

• Fujian Wanchen Food (300972.SZ)

  Beneficiary: Implements defensive subsidies in selected regions like Shaanxi to sustain high-quality growth.

  Strengths

  Profits driven by a high proportion of private-label and niche brands, with a unique unit economic model.

  Weaknesses

  Slower network expansion pace and lower GMV per store compared to Busy Ming.

  Comparison

  Trades at a discount to Busy Ming, reflecting slower scale-up momentum.

  Risks

  Escalating market competition and pricing sustainability; M&A-related risks.

Key data

• 2026E New Store Opening ForecastBusy Ming: 5,100 / Wanchen: 6,500Base case forecast unchanged
• 2026E Gross Margin Expansion ForecastBusy Ming: +0.43 ppt / Wanchen: +1.0 pptDriven by operational gains and scale effects
• Maximum Net Profit Growth Drag (Sensitivity Test)Busy Ming: -3.0% / Wanchen: -4.1%Under assumptions of additional store openings and higher subsidies
• 2026E Forward P/E MultipleBusy Ming: 17x / Wanchen: 14xPost-correction valuation levels
• Target PriceBusy Ming: HK$550 / Wanchen: RMB319Based on 2027E EPS and target P/E, discounted to present value

Impact & implications

The report argues that current localized competition signals industry maturity and rationality, helping eliminate inefficient players and solidify leadership positions. For investors, this means there’s no need to panic-sell over short-term subsidy news; instead, they should focus on how leading firms leverage scale and supply chain optimization for long-term market share gains. The deep integration between brands and value retailers further underscores the sustainability of this channel model, positioning relevant companies to benefit long-term from structural shifts in China’s snack and beverage retail landscape.

Risks

• Competition intensification and price investments exceeding expectations
• Store cannibalization due to excessive network density
• Franchise model risks and scaling complexity
• Supply chain, food safety, and logistics risks
• M&A risks specific to Wanchen

What to watch

• Southbound capital inflows following Busy Ming’s inclusion in the Hang Seng Composite Index
• H1/Q2 2026 earnings reports on new store rollout pace and margin expansion
• GMV per store trends, particularly signals of uplift from Busy Ming’s category expansion
• Duration and intensity changes in regional subsidy policies