GUOQUAN shares have continued their downward trajectory despite the company posting a half-year report with growth in both revenue and net profit. The market has remained unimpressed even as the company expands its store network and opens its first overseas location.

On August 17, GUOQUAN released its 2026 interim financial results, reporting first-half revenue of 3.947 billion yuan, up 21.8% year-on-year, with net profit reaching 213 million yuan, a 12.1% increase. This marks the third consecutive half-year period with revenue growth exceeding 20% since the company emerged from its 2025 performance trough. Yet the secondary market has shown little enthusiasm. By the close of trading on August 24 in Hong Kong, GUOQUAN shares were priced at HK$1.715, down 2.28%.

Notably, just days earlier on August 18, the company's first Hong Kong store officially opened, with founder and chairman Yang Mingchao personally attending the ceremony. He described the location as a "testing ground" for overseas expansion, designed to refine the business model and validate market demand. However, this announcement also failed to generate any meaningful movement in the stock price.

This is not the first time GUOQUAN has experienced the phenomenon of positive news failing to lift its share price. Looking at the longer timeframe, the stock's weakness has deep roots: it listed in November 2023 at HK$5.98, briefly climbed to HK$12.34, then reversed course downward. Throughout 2024, the stock declined almost continuously. While 2025 saw some recovery, the price never approached even half of its peak. Entering 2026, losses have accelerated, with the stock down nearly 60% year-to-date.

Revenue is growing, stores are expanding, and the first overseas location has opened—yet the market remains unconvinced. What exactly is going wrong with GUOQUAN?

The Unstoppable Share Decline: A Shareholder Reduction Triggering an Avalanche?

At the start of the year, GUOQUAN shares actually had a promising beginning. In late January, the company issued a positive profit alert, projecting 2025 net profit growth of 83.7% to 92.0%. On March 12, the "best annual report ever" was released, showing full-year revenue of 7.81 billion yuan, up 20.7%, and net profit of 454 million yuan, a substantial 88.2% increase. On April 2, the board approved a dividend policy. With these three positive catalysts stacking up, GUOQUAN shares climbed steadily, reaching as high as HK$4.80 in early April, with market capitalization briefly touching approximately HK$13 billion.

However, the turning point came unexpectedly. On April 15, GUOQUAN announced that one of its controlling shareholders, Shanghai Guoxiaquan Enterprise Management Center (Limited Partnership), had entered into a block trade agreement with Huatai Financial Holdings (Hong Kong), selling 124.5 million shares at HK$3.80 per share—representing approximately 4.74% of issued share capital. The price represented an 11.8% discount to the closing price of HK$4.31 that day, with total proceeds of approximately HK$473 million. Yang Mingchao is the controlling shareholder of Guoxiaquan Enterprise Management, meaning this was effectively a reduction by a founder-affiliated entity.

Following the reduction, the combined voting rights of Yang Mingchao, Meng Xianjin, and Li Xinhua as concert parties fell from 49.39% to 44.66%, though they retained controlling status. The market responded immediately. On April 16, GUOQUAN shares plunged over 19%, and continued falling on April 17, with cumulative losses of approximately 25% over two trading days, erasing all previous gains.

Perhaps recognizing the negative impact on the stock price, on April 16 GUOQUAN announced to the Hong Kong Stock Exchange that it had received a letter of commitment from controlling shareholders Yang Mingchao, Meng Xianjin, Li Xinhua, Guoquan Industrial, Guoxiaquan Enterprise Management, and Guoxiaquan Technology: "The controlling shareholders voluntarily commit that for 180 days starting from April 16, 2026 (April 16, 2026 to October 12, 2026, inclusive), they will not sell their directly or indirectly held shares in the company by any means."

However, this reassurance failed to halt the decline, as market confidence had already been damaged. Over the following two-plus months, GUOQUAN shares continued to fall, hitting an intraday low of HK$1.65 on June 25—a new record low since listing. On August 17, the day the interim report was released, the stock closed at HK$1.98. In other words, within just four months, the company's total market value shrank from HK$13 billion to approximately HK$5 billion.

Looking at the extended timeline, GUOQUAN's share price weakness did not begin in 2026. In November 2023, the company listed on the Hong Kong Stock Exchange at an issue price of HK$5.98. In January 2024, shares briefly hit an all-time high of HK$12.34 before entering a sustained decline. During 2024 particularly, the stock fell almost continuously from the beginning to the end of the year. In February, CFO Xia Ni departed just three months after the company's listing, and combined with the small-cap liquidity crisis affecting both A-shares and H-shares, the stock lost more than 30% within a month. In November, on November 4, the day share lock-ups expired, the stock plunged 25.09%. Prior to the lock-up expiry, controlling shareholders had similarly committed to no reductions for six months.

By the end of 2024, GUOQUAN shares had fallen approximately 70% from their issue price. Of course, 2025 represented something of a recovery year for the company—both in performance and share price. Full-year 2025 revenue reached 7.81 billion yuan, up 20.7%, with net profit of 454 million yuan, surging 88.2%. Yang Mingchao himself described 2025 as "the best year" in his decade since founding GUOQUAN. On May 8, following H-share full circulation filing approval, shares rose over 16% intraday. On July 16, the day after the profit alert, shares opened nearly 15% higher, breaking through HK$4 intraday to hit a yearly high. By August 6, cumulative gains for the year had reached 94.29%. However, the full-year peak never approached even half of the HK$12.34 all-time high.

Now in 2026, as previously described, the company has returned to a spiral of continuous share price decline. It's not that management hasn't been trying. Since September last year, share buybacks have grown increasingly aggressive and frequent—approximately 180 million yuan in 2025, with an additional HK$200 million facility added in April 2026. In just the first half of 2026, over 80 million H-shares were repurchased for approximately HK$192 million in total consideration. Then there are shareholder dividends. In 2025, total shareholder returns reached 570 million yuan. After distributing approximately 100 million yuan in final dividends in April 2026, the company again proposed an interim dividend of HK$0.0503 per share in August, with expected total distribution of approximately 128 million yuan, representing nearly 60% of first-half net profit. Based on founder Yang Mingchao and his concert parties' 44.66% shareholding, the cash income from just these two dividends alone exceeds 100 million yuan. Combined with the 473 million Hong Kong dollars from the April share sale, Yang's cash returns this year have become quite substantial.

Accelerating Store Openings, Category Expansion, and Scene Diversification: GUOQUAN's Search for New Growth

Setting aside the falling share price and continuous shareholder reductions, GUOQUAN has not been idle at the business level. The company's core business is straightforward—selling ingredients to franchisees. In 2025, GUOQUAN sold 6.2 billion yuan worth of ingredients to franchisees, accounting for 81.4% of total revenue. As of the end of June 2026, total store count reached 12,198, with 12,190 being franchise stores—nearly 100% of the total. In the first half of the year, 997 new stores opened while 365 closed, for a net increase of 632.

However, the "selling goods to franchisees" business model has limited headroom. A former GUOQUAN employee once candidly told the media: "Everyone internally knows that while the hotpot business looks prosperous, growth ceiling for the core business is near, and innovative businesses are the future." This anxiety is reflected in the data. In both 2024 and 2025, GUOQUAN closed approximately 900 stores each year. In the first half of 2026, the company opened 997 stores while closing 365. Behind this pattern of massive openings and closures lies the challenge of franchisee profitability.

More critically, in the annual plan announced in March, GUOQUAN projected total stores would exceed 14,500 by the end of 2026. However, by the time of the August interim report, this target had been revised downward to over 13,100—a reduction of nearly half the expansion target within just five months.

While slowing store openings, GUOQUAN is also aggressively searching for new narratives. Since 2025, the company has been pursuing a "community central kitchen" strategy with a series of initiatives. First is store model upgrades, transitioning from small community stores of a few dozen square meters to larger formats of 150, 200 square meters or more. In the first half of 2026, 684 stores completed upgrades to the larger format. Upgraded stores now feature breakfast areas, bakery sections, and fresh produce zones, with SKU counts expanding from around 300 to over 500. Yang Mingchao stated at the results meeting that stores could potentially reach 400-500 square meters in the future.

Second is scenario expansion. The company is no longer satisfied with just the "eating hotpot and barbecue at home" scenario. In 2025, GUOQUAN strategically invested in smart kitchen service provider Xiongmao Master, launching the "Guoquan Xiaochao" (small stir-fry) project. These stores don't offer dine-in service and primarily rely on intelligent wok machines that can produce meals in as little as 2-3 minutes. Unlike GUOQUAN's main stores that target township markets, Guoquan Xiaochao prioritizes higher-tier market locations. Additionally, the company has launched camping scenario operations, with 96 camping outlets operating in the first half of 2026, as well as "Guoquan Farm" focusing on agricultural products.

However, these new businesses remain in early market validation stages. According to financial reports, product sales to franchisees in the first half of 2026 reached 3.17 billion yuan, still accounting for as much as 80.3% of total revenue. As such, new business contributions to revenue remain minimal at best. Meanwhile, profitability pressures have emerged. In the first half of 2026, overall gross margin was 21.5%, down 0.6 percentage points year-on-year, with net margin of 5.4%, down 0.5 percentage points. The financial report attributes this to two factors: lower margins on new categories such as golden pillow durian, and rising raw material costs for certain products. Additionally, cost increases have outpaced revenue growth, with cost of sales up 22.8%, selling and distribution expenses up 24.6%, and administrative expenses up 17.7% during the period.

Clearly, GUOQUAN is working to transform from a "hotpot ingredient seller" into a "community dining retail platform," but this transformation requires time and substantial capital investment. With share prices remaining depressed and cash flow under pressure, whether these new businesses can succeed remains uncertain.

Two Larger Hidden Dangers: Food Safety and Franchisee Confidence

If the falling share price represents short-term market voting, then food safety and franchisee issues are the two "swords of Damocles" hanging over GUOQUAN's head.

Consider food safety first. As the store network has surpassed 10,000 locations, food safety issues have erupted with increasing frequency. On third-party platforms like Heimao Complaint, complaints about GUOQUAN stores have accumulated to over a thousand, primarily focused on "foreign objects in ingredients" and "ingredient dating issues." Since 2026 alone, publicly reported food safety incidents have been nearly continuous.

In January 2026, a consumer in Hangzhou ordered ingredients through a food delivery platform from GUOQUAN, and upon receipt found that a box of firm tofu with a production date of January 12 and a shelf life of only 2 days had already expired. In the same month, a consumer in Baishan, Jilin Province purchased tripe from a GUOQUAN store and discovered a fly inside the packaging upon opening it. In March, a netizen in Xi'an, Shaanxi Province found that loose-dated meat hotpot ingredients purchased from GUOQUAN were marked with the date "February 29, 2026" — a date that doesn't exist. Entering the second half of the year, the situation has not improved. In July 2026, a consumer found a cigarette butt in ingredients purchased from a GUOQUAN physical store. After the merchant reported to headquarters, the initial response was compensation of only 100 yuan, which was then delayed to 250 yuan on the third day, and further delayed to the fourth day with the claim that compensation under the Food Safety Law was not applicable.

What frustrates consumers even more is GUOQUAN's attitude toward problem resolution. From expired tofu to cigarette butt contamination, the headquarters' response pattern has been remarkably consistent: shifting responsibility to franchise stores. This type of defensive response both erodes consumer trust and alienates franchisees.

Now consider the franchisee situation. GUOQUAN's business model is essentially a supply chain operation with a "zero franchise fee" approach. After passing assessments, franchisees pay no one-time franchise fee, with headquarters providing site selection, decoration, training, logistics, and other support services for corresponding service fees. Whether franchisees can actually make money is the core proposition of this business. As store density increases, the risk of diluted per-store foot traffic grows. Some franchisees have reported that the "1.5 kilometer radius protection" policy promised in earlier stages was not fully implemented, with multiple GUOQUAN stores operating within 500 meters in a straight line, resulting in average daily turnover being "cut in half" compared to when the franchise first opened.

Store closure data also tells the story. In 2024 and 2025, GUOQUAN closed approximately 900 stores annually. In 2025, 2,365 new stores opened with net growth of 1,416—meaning nearly a thousand stores closed while two thousand opened. In the first half of 2026, 997 opened and 365 closed. For a dining retail format, store network expansion and densification often create competition between stores. If closure risks expand and franchisee payback periods lengthen, the willingness to open new stores diminishes.

More alarmingly, nearly 80% of GUOQUAN's operating revenue comes directly from product sales to franchisees. Losing franchisees would mean contraction in both revenue and profit. Overall, the problem with GUOQUAN's model is that it earns money from franchisees, while franchisees earn money from consumers. If consumers are unwilling to visit stores due to food safety concerns, or if store densification causes per-store revenue to decline continuously, franchisees won't make money and will ultimately close up and leave—at which point GUOQUAN's entire business model collapses.

While the company has been making efforts in recent years to address these challenges through larger store formats, category expansion, and scenario innovation, food safety represents a bottom-line issue and franchisee profitability forms the foundation of the model. If these two lines are breached, no amount of "new narratives" can save GUOQUAN.