At the mid-year results conference held in August this year, Guoquan's chairman, Yang Mingchao, made a remark that was captured by several media outlets: "The day Guoquan finally breaks out, I can retire." At the time of this statement, the company had just delivered what appeared to be a solid set of half-year results.
In the first half of 2026, Guoquan generated revenue of RMB 3.947 billion, a year-on-year increase of 21.8%, and recorded a net profit of RMB 213 million, up 12.1%. Both top-line and bottom-line figures showed positive momentum, with its store network climbing to 12,198 locations, signaling that its 10,000-store base was still expanding.
However, the secondary market's reaction stood in stark contrast to these financials. After reaching a 2026 high of HKD 4.74 in April, Guoquan's share price has been on a downward trajectory ever since, dipping to an intraday low of HKD 1.65 on June 25. The stock has lost over 50% of its value this year and is down more than 80% from its all-time high, creating a clear disconnect between rising earnings and a falling share price.
Capital markets never look solely at revenue figures. In the eyes of investors, the core narrative that once underpinned Guoquan's valuation was the scale advantage derived from rapid store expansion. The network of 10,000 stores fueled the market's imagination about its growth potential. Now that the store count has surpassed 12,000, the logic of relying purely on opening new outlets to drive expansion has hit a hard ceiling. Yet, as of now, the company has failed to present a compelling new growth story that could persuade the market otherwise.
Underlying Business Fundamentals
A closer look at Guoquan's 2026 interim report reveals the most glaring contradiction: the persistent mismatch between revenue growth and profit growth. In the first half, revenue climbed 21.8% year-on-year, but net profit growth lagged at just 12.1%, trailing revenue growth by nearly 10 percentage points, while net profit attributable to shareholders grew only around 15%. For a company built on a franchise model, rising revenue without proportionate profit growth is not a short-term blip but a signal warranting medium- to long-term vigilance.
The simultaneous decline in gross and net margins further underscores the weakening profitability. Financial data shows that Guoquan's gross margin for the first half of 2026 stood at 21.5%, down 0.6 percentage points year-on-year, while its net margin slipped from 5.9% to 5.4% over the same period. The company attributes the gross margin compression to two factors: the introduction of new non-hotpot and BBQ categories like golden pillow durian pulp, which dilutes overall gross margins, and rising costs for certain upstream raw materials.
Previously, in an effort to broaden consumption scenarios and seek new growth engines, Guoquan stepped out of its comfort zone in traditional hotpot and BBQ ingredients by adding bakery and fruit SKUs, choosing to sacrifice margins in exchange for category expansion and sales scale. The practical issue is that these new categories have yet to become robust profit pillars; instead, they are steadily eroding the profitability of the core business, with unit economics weakening step by step.
Changes on the expense side also warrant careful scrutiny. In the first half of 2026, Guoquan's selling and distribution expenses reached RMB 384 million, up 24.6% year-on-year. Cost of sales also rose from RMB 2.522 billion to RMB 3.098 billion, an increase of approximately 22.8%. Both expense lines grew faster than revenue. Simply put, in the past, rapid store expansion brought traffic naturally, and revenue growth came from the organic expansion of the store network. Now, sustaining revenue growth requires injecting more selling, marketing, and channel expenses to drive business. The growth driver has shifted from the natural benefits of network density to being expense-driven, marking a clear decline in operational efficiency. When costs outpace revenue, maintaining the same growth rate demands ever-higher marketing expenditures.
A more concerning issue than slowing profit growth is the fact that a significant portion of the reported profit has yet to be converted into tangible cash. The interim report shows that despite double-digit net profit growth, cash and bank deposits of RMB 134 million actually declined year-on-year. In the first half of 2026, cash used in operating activities reached RMB 102 million, compared with RMB 29 million in the same period last year, representing a 252% surge in cash outflows. While the company still holds RMB 1.343 billion in cash reserves on its balance sheet, and those numbers look ample on paper, the divergence between book profit and operating cash flow shows that Guoquan can no longer have its operational quality defined solely by revenue growth—the increase in revenue may well be achieved at the expense of business health.
Beneath the shell of its 10,000-store scale, operational pressures are becoming increasingly apparent.
Failed Logic
The fact that Guoquan grew from a single community store in Zhengzhou, Henan, to a 10,000-store Hong Kong-listed company in just a few years cannot be separated from the home consumption dividend brought about by the pandemic. According to data disclosed in its prospectus, Guoquan had only 1,441 stores nationwide at the start of 2020, which ballooned to 9,221 by the end of 2022—a net addition of nearly 7,800 stores in just three years, averaging 7–8 new store openings per day. This was a swift and nearly flawless scale expansion.
The timing was particularly unique: pandemic restrictions limited dining out, making home hotpot and BBQ a go-to choice for many consumers. With surging market demand and franchisees eager to join, a combination of external conditions helped create Guoquan's 10,000-store myth. But external tailwinds inevitably fade. Once pandemic controls were lifted, the underlying demand logic that supported Guoquan's rapid expansion began to loosen. As consumers left their homes more often, the channels through which they could purchase hotpot ingredients became far more diverse. Guoquan's competitors were no longer limited to online platforms like Hema and Dingdong Maicai, but also included traditional offline hotpot restaurants and large supermarkets.
The most direct reflection of this shift is the sharp decline in per-store revenue. In 2022, Guoquan's average annual revenue per store hit an all-time high of RMB 703,000. By 2023, as consumption scenarios returned to offline dining and demand for home ingredients shrank, per-store revenue fell to RMB 521,000. It rebounded slightly to RMB 537,000 in 2024 but remained below the 2022 peak.
Since 99.9% of Guoquan's stores are franchises, the survival status of its franchisees serves as a barometer for the health of its business model—and many franchisees are already struggling. In both 2024 and 2025, Guoquan closed approximately 900 stores each year. In the first half of 2026, the company opened 997 new stores and shut down 365. Data from Kuangmen Canyin shows that in the first quarter of 2025, the number of active stores fell by more than 1,600 compared to the end of 2024. This cycle of aggressive openings and closures has become the norm, with the franchise system under considerable strain: new stores are constantly being recruited while a large number of existing ones exit due to losses.
Interim financial data reveals that same-store sales revenue grew just 7.4% year-on-year in the first half of 2026, well below the company's overall growth rate. This implies that the vast majority of new revenue is coming from newly opened stores. To grow the overall pie, Guoquan must keep opening more stores just to offset the weak output of existing ones. Relying on new stores for growth is, in essence, borrowing from the future. Once the pace of store expansion slows, overall revenue growth will quickly come under pressure—this is the core concern investors have about Guoquan.
The management team is clearly aware that the era of crude, land-grab expansion has come to an end, and that relentlessly chasing store count is no longer a viable path. In response, Guoquan has proactively hit the brakes on expansion. When announcing its interim results, the company lowered its full-year net new store target from 2,934 to 1,534, signaling a shift away from expansion at any cost. Internally, 2026 has been designated the year of "opening larger stores and fighting street battles," with a clear goal of "doubling store size and tripling performance." In the first half, the company completed upgrades on 684 existing stores, expanded SKUs to include bakery and produce categories, and hopes that larger stores with richer product offerings will boost per-store efficiency.
Missing Antidote
The challenge with the large-store model lies in the fact that franchisees must bear higher renovation and equipment costs, pushing up upfront investment and extending the payback period. Guoquan claims the model can deliver substantial operational efficiency gains, but long-term operational data to support the "triple growth" assertion remains insufficient. Whether the large-store transformation can ultimately validate the profit model will require a longer observation period.
Beyond store renovations, Guoquan is also exploring new scenarios: opening its first store in Hong Kong, continuing to roll out camping-themed stores, and seeing rapid growth in its farm business. These new directions are viewed as potential future growth points, but they are still too small in scale to shoulder the company's growth ambitions. The timeline for these new narratives to deliver is long and fraught with uncertainty.
Yang Mingchao has also extolled the virtues of "flowing water does not compete for precedence; it competes for endless momentum" on multiple public occasions, hoping to convince the market that Guoquan prioritizes long-term development over short-term scale bubbles. However, what the capital market sees is a different set of actions. On April 15, 2026, Shanghai Guoxiaoquan Enterprise Management Center, controlled by Yang Mingchao, sold 124.5 million shares of Guoquan at HKD 3.80 per share via block trade, an 11.8% discount to the day's closing price, cashing out approximately HKD 473 million in total. While touting long-termism, the actual controller has secured a substantial payday, creating a visible rift between the narrative and reality. Following the disclosure of the share reduction, Guoquan's stock price plunged nearly 30% over two trading days.
In addition to the sell-down, Guoquan's dividend policy has also sparked market debate. For fiscal 2025, total shareholder returns reached RMB 570 million, and two interim dividends in 2026 totaled approximately RMB 228 million. Based on Yang Mingchao and his concert parties' 44.66% stake after the reduction, they would have received over RMB 300 million in dividends in less than two years. Generous shareholder payouts are not inherently problematic, but in the context of Guoquan's persistent operational pressures, the high-dividend strategy carries an added layer of controversy.
More recently, attention has turned to Yang Mingchao's foray into the baijiu industry. In November 2025, through his personally controlled Henan Guoquan Industrial Development Co., Ltd., Yang completed a restructuring investment in Songhe Liquor, acquiring a 51.81% controlling stake. In February 2026, he officially assumed the role of chairman at Songhe Liquor. That same month, Guoquan signed a RMB 200 million procurement framework agreement with the Songhe Group to promote an integrated "hotpot plus liquor" supply arrangement. Songhe Liquor was once a celebrated Henan brand, but it was carrying debts of up to RMB 10 billion before its restructuring, with insolvency a glaring issue. Given the intensely competitive nature of the baijiu industry today, revitalizing this legacy distillery will be no easy feat.
It is important to clarify that Songhe Liquor is not part of the listed Guoquan entity; it falls under the actual controller's personal industrial holdings. This raises a pointed question: is the listed company being used to funnel cash into the controller's assets? The market is left with an unavoidable inquiry—while the actual controller is cashing out substantial sums from the listed company and collecting dividends, and simultaneously using those funds to take over a heavily indebted liquor company, the listed entity is also being directed to make large purchases from a related party. Is this a case of using the listed company's money to prop up the controller's enterprises? These are lingering doubts that weigh on investors' minds. Until these concerns are addressed, Yang Mingchao's dream of retirement may remain far off.