Leading polymorphism companies with brand advantages support new growth with Chinese polymorphism and convenience foods. Yihai International originated and is rooted in Haidilao. It is not only the largest supplier of Haidilao hot pot base products, but also has the right to use the Haidilao brand permanently. In recent years, the company has accelerated the pace of development, actively expanded third-party channels in terms of sales, reduced dependence on related parties, and promoted Chinese polymodulation and convenient fast food products in terms of products, and enriched the product matrix. In order to support the long-term development of the company's business, the company has now planned corresponding production capacity layouts at home and abroad. The five major industrial centers have achieved localized production to guarantee supply, and the eleven major logistics centers have improved product distribution efficiency.
New iterations are being introduced rapidly, and the product matrix is gradually improved to provide a foundation for growth.
In 2022, the company optimized its product development organization. In China, 7 innovation committee members led 21 product groups to carry out product development work. At the same time, for overseas business, the company set up 7 product groups in Asia (outside mainland China) and 1 product group in Europe and the US. It is hoped that the products developed will better meet the needs of overseas consumers.
The company focuses on long-term product planning and strengthens product launch standards to improve the success rate of new product launches. By the end of 2023, the company was saling/adding 62/24 hot pot seasoning products, 68/37 Chinese compound seasoning products, and 72/40 convenient fast food products in the same year. Among them, the non-spicy flavor of hot pot base successfully achieved differentiated breakthroughs, and the composite seasoning product matrix was continuously improved, making it easy for the fast food channel to sink down and achieve initial results.
The share of third-party revenue continues to rise steadily, and the opening up of franchises by related parties drives demand growth. The company's share of third-party channels gradually increased, and surpassed the share of related party business in 2018. Since then, the overall growth rate of the company's third-party business was superior to that of the company's overall growth rate. The third-party/related party revenue CAGR in 2018-2023 was 22.4%/11.3%, respectively. In 2024, the company will further implement refined channel management and digital management, and it is expected that targeted marketing adjustments will be made for different types of consumers. In addition, the company will actively embrace online channels and accelerate the exploration of marketing strategies and service systems for B-side businesses to enhance supply capacity. Related parties opened up to join in 2024, and demand for existing products is expected to increase along with the increase in Haidilao stores. Furthermore, the company has long-term competitive advantages in product and R&D, and is expected to benefit from the expansion of Haidilao brand stores in the medium to long term.
Profit forecast and investment advice: We expect revenue for 2024/2025/2026 to be 68.8/750/8.07 billion yuan, net profit to mother of 98/11.1/1.23 billion yuan, corresponding adjusted EPS of 1.0/1.1/1.3 yuan, and corresponding PE of 15X/13X/12X. Referring to the average valuation level of the industry and considering the A/H market differences, the company was given a PE level of 18X in 2024, $18.04, corresponding to HK$19.66 (1RMB = 1.09HKD), for the first time, covering the “superior to the market” rating.
Risk warning: Related party expansion falls short of expectations, new product promotion falls short of expectations, new channel expansion falls short of expectations, raw material prices fluctuate