The share of related party revenue fell to a low level, and the Haidilao brand dividend continued 1) The company initially relied on Haidilao store expansion to achieve rapid growth, and the share of third parties increased steadily in the later stages.

From 2013 to 2017, the share of related party revenue remained at 50% +. Since 2017, the share of third party revenue has surpassed that of related parties and gradually increased. From 2023 to 2024, the share of related parties increased slightly, due to the recovery in catering and the setback in fast food revenue. The single business sector continued the trend of increasing the share of third parties. 2024H1 accounts for 66% of third parties, which is basically not dependent on Haidilao. The company has served Haidilao for many years, has rich experience in ODM of hot pot ingredients, and can provide third-party catering customers with customized R&D and production of standardized recipes. Third-party revenue CAGR for fondue base from 2013 to 2023 was 38%. The gross margin of third party/related party for hot pot seasoning in 2023 was 48.6%/17.3%. 2) Haidilao brand endorsement keeps the company's marketing expenses low, and third-party channels significantly increase gross profit margins. The sales expense ratio in 2023 is about 10%, which is significantly lower than Tianwei's 15%.

The hot pot base consolidates the basic market, and complex fast food pioneered the second growth curve. The company pioneered diversified strategies. The hot pot base followed the Haidilao brand, cultivating the sub-brand “Chopsticks Chef” to cover C-end Chinese polymodulation and “Yueyihai” to cover B-end polymodulation and semi-finished products. Multiple brands complement each other and seize the segmented circuit. From 2017 to 2023, the revenue CAGR for hot pot seasoning/Chinese polymixing/fast food products was 20%/22%/68%.

The company's current product structure is stabilizing. In 2023, hot pot seasoning/Chinese polymixing/instant fast food accounted for 67%/10%/23% of revenue.

Channel adjustments and organizational changes go hand in hand, and overseas markets bring growth. Companies continue to carry out their own reforms: 1) Dig deeper into the sinking market. By the end of 2023, the company's third-party dealer sales business covered 34 provincial administrative regions in China and 49 overseas countries and regions, and the company has entered the process of increasing its penetration rate in the sinking market. 2) The company introduced a partner system in 2018 to stimulate the subjective activism of sales staff and management. In 2019, a mentorship system was introduced for partner fission, and in 2021, the company switched to a top-down unified management model to improve channel operation efficiency. 3) New volume in overseas markets. The company focuses on going overseas to the Southeast Asian market, accelerate the construction of supply chains and management capabilities, and drive overseas revenue growth. From 2017 to 2023, the company's overseas market business CAGR reached 37.4%, and the business share increased from 3.4% to 6.1%. It is expected that the share of overseas business will continue to increase as subsequent export barriers are removed and production capacity is further expanded.

Profit forecasting and valuation

We expect the company's overall revenue for 24/25/26 to be 6.779/7.663/8.565 billion yuan, respectively, up 10%/13%/12% year over year. Net profit to mother was 0.825/0.964/1.089 billion yuan, respectively, -3%/17%/13% YoY. The corresponding EPS is 0.80/0.93/1.05 yuan/share, and the corresponding PE is 17/15/13 times. In view of Yihai International's low valuation and high growth rate, Yihai International was given an “plus” rating.

Risk warning: Hot pot base, Chinese remodulation, and convenient fast food are sinking, market penetration is slow; competitive landscape deteriorates; dealers are not motivated enough after product prices have been reduced, etc.