Company: Liu, Dianhua, and ready to go. On the way back to trading, the company took advantage of the industry boom to record a historical yield of 15 times in 3 years from 2016 to 2019, and the stock price experienced a roller coaster after 2020. Starting again after three years of failure, competition in the industry has become rational, and the leading position is stable. In addition, in 2023, the company and Haidilao both increased their dividend ratio significantly to 90%, considering the current abundant production capacity, low capital expenditure, and abundant cash flow, and high dividend support.

Industry: Excellent multi-modulation circuit, fast food looking for new opportunities. (1) Polyphonic: The competitive pressure period has passed, and the background color of the track will not be improved. By category, the polymodulation market has broad long-term space. Both hot pot seasoning and Chinese polymodulation are in a period of growth and penetration, and the industry pattern is relatively scattered; by channel, catering is the main consumption scenario of polymodulation. Considering the pace of penetration of the C-end category, in the short term, catering is still the core gripper.

(2) Fast food: Self-heating decelerates growth and makes more effort to find growth. By category, the convenient fast food market currently exceeds 100 billion. Among them, the brewing category is the core category. The self-heating category has entered an adjustment period after experiencing a rapid explosion, and the light cooking category has improved overall growth due to rapid iteration of internal explosions.

Outlook: The inflection point has been reached, and reforms are helping. Since 2022, the gap between Yihai International and Tianwei Food has gradually widened due to a combination of factors such as pressure from related parties, weak demand for fast food, and elimination of Chinese food. Considering differences in channel genes and product matrices, Yihai is more severely disturbed by the external environment, but organizational adjustments are lagging behind and the response to the market is sluggish or central. We believe this year may welcome reversal opportunities due to the growth of related parties, product quality-price ratio, incentive model reform, and multi-channel supplementation.

Profit forecasting and investment advice. The company's net profit for 2024-2026 is estimated to be $9.4/1.09 billion, +10.7%/+12.4%/+11.9%. Referring to comparable company valuations and the momentum of company reform, 18 times PE was given in 2024, with a corresponding reasonable value of HK$18.00 (HKD/CNY 0.91) per share, covering the first time to give it a “buy” rating.

Risk warning: Industry demand falls short of expectations, industry competition exceeds expectations, fluctuating raw material costs, company channel adjustments, and product promotion fall short of expectations.