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Ask AI · Why does Weikang’s gross margin look high, yet its net profit is lower? What differences exist in the cost structure?

On March 27, Weikang (China) released its 2025 annual report. Compared with 2024, when revenue declined and it recorded losses, its performance improved markedly last year. In 2025, its revenue increased year over year by 6.68% to RMB 1.832 billion, and it turned profitable, with net profit of RMB 0.28 billion, versus a net loss of RMB 0.20 billion in the prior year.

Weikang Ramen was first created in Japan. In 1996, Weikang’s founder introduced it to mainland China and Hong Kong, and in 1997 opened the first store in Shenzhen. In 2007, it listed on the Hong Kong Main Board. The core revenue of Weikang (China) comes from restaurant operations in mainland China and Hong Kong, as well as the sale of ramen and related products. As of the end of December 2025, Weikang (China) had 617 restaurants, net increasing by 21. Compared with the net addition of 34 restaurants in 2024, its store-opening pace slowed down last year. However, prior to 2024, Weikang (China) had also experienced store-count contraction for two years. In 2022 and 2023, it respectively net decreased by 140 and 35 restaurants.

Last year, the main driver of Weikang (China)’s growth in store count was the Hong Kong market. During the reporting period, it added 13 stores in Hong Kong, while in mainland China it opened stores in some provinces and cities and closed stores in others, for an overall net increase of 9 stores. In addition, it closed 1 store in Finland. By region, as of the end of 2025, its East China stores were the most, with 263 locations; South China ranked next with 169 locations.

Mainland China remains Weikang (China)’s largest market, but its revenue growth rate in Hong Kong is significantly faster. In 2025, revenue from restaurants operated in mainland China was RMB 1.518 billion, up 4.47% year over year; operating profit was RMB 86.773 million, up 547.75%. Revenue from restaurants operated in Hong Kong was RMB 266 million, up 35.03% year over year; operating profit was RMB 5.086 million, up 112.98%. Revenue from selling ramen and related products externally in Hong Kong and mainland China was RMB 48.147 million, down 28.63% year over year.

Image source: Weikang official website

Besides Weikang, the currently listed companies mainly operating noodle restaurants in mainland China also include Encountering Xiao Mian. Both companies released their annual reports on the same day. Encountering Xiao Mian has a smaller number of stores. As of the end of 2025, Encountering Xiao Mian had a total of 503 stores. In terms of revenue and gross margin, Weikang (China)’s performance last year was better than Encountering Xiao Mian’s, but its net profit was only about one-quarter of Encountering Xiao Mian’s. In 2025, Encountering Xiao Mian’s revenue was RMB 1.622 billion, net profit was RMB 106 million, gross margin was 67.60%, and net margin was 6.54%. Meanwhile, in 2025, Weikang (China)’s gross margin was 76.98%, and net margin was 1.76%.

Breaking down the two companies’ cost structures shows that Weikang (China)’s employee costs, other operating expenses, and other losses were all higher than Encountering Xiao Mian’s.

In 2025, Weikang (China)’s employee costs increased year over year by 2.31% to RMB 491 million, while the employee cost ratio fell by 1.1 percentage points to 26.8%. By comparison, Encountering Xiao Mian’s employee costs were RMB 356 million, representing 21.94% of revenue.

In 2025, Weikang (China)’s other operating expenses were RMB 514 million. Since the accounting line items of the two companies are not exactly the same, Encountering Xiao Mian did not include items such as water and electricity expenses and advertising and promotional expenses in the “other expenses” line item; instead, they are presented separately. To facilitate comparison, after excluding spending related to rent and listings, Weikang (China)’s other operating expenses were RMB 473 million, accounting for 25.82% of revenue. Encountering Xiao Mian’s total other operating expenses were RMB 227 million, accounting for 13.96% of revenue. Weikang (China)’s other operating expenses were clearly higher than Encountering Xiao Mian’s.

Among other operating expenses, the two companies’ takeaway delivery-related spending rose noticeably last year. In 2025, Weikang (China)’s delivery platform service fees increased year over year by 49.56% to approximately RMB 85.10 million. In response, it explained that, due to intensifying competition in the takeaway delivery market, it recorded relatively high takeaway delivery revenue last year, and this increase led to a significant rise in the service fees paid to the delivery platforms. In 2025, Encountering Xiao Mian’s service fees paid to takeaway delivery platforms increased year over year by 84.20% to RMB 77.87 million, while its takeaway delivery revenue also rose year over year by 108.29% to RMB 377 million, and its share of revenue increased by 7.7 percentage points to 23.3%.

Both companies’ restaurants are mainly company-operated, and they also have franchise stores; however, their overall production and operation models are not quite the same. Weikang (China) has its own production bases, which supply semi-finished products or core raw materials to stores. Encountering Xiao Mian, by contrast, mainly operates restaurants and has no production business. Weikang (China) has five major production bases in Shanghai, Wuhan, Chengdu, Tianjin, and Dongguan. Based on the annual report, these production bases also generate depreciation, factory management fees, logistics expenses, factory employees’ wages, and more, while Encountering Xiao Mian does not have corresponding expenses.

Compared with Encountering Xiao Mian, Weikang (China)’s other losses are also relatively higher. In 2025, this figure was RMB 44.166 million, while Encountering Xiao Mian’s other losses were RMB 6.467 million. Weikang (China)’s other losses were mainly due to impairment of the properties it invested in, whereas Encountering Xiao Mian’s losses were due to increased foreign exchange losses, losses from store closures, charitable donations, and others.

Regarding this year’s store-opening plans and its high operating expenses, on March 30, a reporter from Nandu Bay Finance and Media Society contacted Weikang (China). As of the time of this release, no response had been received.

Written and reported by: Nandu · Bay Finance and Media Society reporter Zhan Danqing