Investment advice

At this stage, the market's concerns about Yasui stem from the room for revenue growth and profit margin improvement. Through multi-angle analysis and estimation, we believe that the company's main business revenue still has room to double, product structure upgrades contribute to improved profitability, and ROE is expected to recover to around 20% after production capacity starts and climbs.

rationales

Main business: There is still room to double revenue from hot pot ingredients and rice noodles, and structural upgrades are expected to contribute to improved profitability.

1) Frozen hot pot ingredients: The industry has entered a mature period of single-digit growth, and Yasui's leading position is stable. The company further increased its market share through channels and production capacity expansion on the B-side, and launched fresh-lock packaging on the C-side to seize the middle and high-end markets. We estimate that in the next 3 years, Locked Fresh Packaging will contribute 0.4-1.4% per year to the tonnage price of the hot pot ingredients business. At the same time, combined with the company's disclosed capacity plan, the production capacity will increase by about 12% in the next 5 years. We expect Yasui's revenue to reach 12 billion yuan in the next 5 years, and 14.7 billion yuan by 2030. 2) Frozen rice and noodles: The B-side of the industry is still in a growth period. The C-side has reached maturity, and the share of Yasui market is about 5%. The growth space comes from C-side differentiation and B-side development of new channels. We expect Yasui's revenue to maintain 10-15% growth over the next 5 years, and the revenue scale is expected to reach about 5 billion yuan. 3) Sausage: The industry is in the stage of quality upgrading. With Yasui's cost performance and channel advantages, we expect to reach a scale of 5-10 billion yuan. 4) Locked Fresh Packaging and Marunosama are the main driving forces supporting the improvement of the company's profitability. Under a neutral assumption, product structure upgrades contribute to an increase of about 0.4 ppt in the gross margin of the main business every year.

Pre-prepared dishes: category+scenario optimization and adjustment, growth is expected to improve. The company promotes the serialization of explosives to achieve penetration into multi-channel scenarios; in addition, it focuses on chicken preparations and aquatic products to give full play to the advantages of the supply chain.

1) Chef Yasui: Focus on scenes such as chicken preparation, skewer grilling, power group meals, and barbecues. 2) Mr. Frozen: Lay out specialty aquatic products to promote the serialization of ingredients around hot pot and the transformation of hotel food channels. 3) Crayfish: Supply and demand will balance in 2024. We expect revenue to resume rapid growth through brand, channel, and management empowerment. 4) There is a possibility of mergers and acquisitions in the medium to long term.

Endogenous ROE is expected to gradually improve to around 20%. The expansion of production capacity in 2022/22 and a sharp increase in monetary capital after financing dragged down the company's ROE in the short term. In the future, as profitability improves and production capacity climbs, we expect the company's ROE to gradually recover to around 20%.

Profit forecasting and valuation

We maintained 2023/24 revenue of 146.7/16.66 billion yuan, introduced 2025 revenue of 18.916 billion yuan, maintained 2023/24 net profit of 15.7/1.75 billion yuan, introduced 2025 net profit of 2.05 billion yuan. The current stock price was traded at 14.7/12.5 times P/E in 2024/25. Considering sector valuation adjustments, we lowered the target share price 19.7% to 110.0 yuan/share, corresponding to 18.5/15.7 times P/E in 2024/25. The current stock price has 26.0% room to rise, maintaining an outperforming industry rating.

risks

Demand falls short of expectations; risk of fluctuating raw material costs; risk of increased industry competition; food safety risk.