The Zhitong Finance App learned that Dongwu Securities released a research report saying that maintaining the “buy” rating of Yihai International (01579), the growth rate was positive in the beginning of 2024. There were many highlights of related party & third party business throughout the year. There is still room for improvement in profitability under product structure improvements. It maintains a profit forecast of 10.0/11.3/1.26 billion yuan for 2024-26, an increase of 17.5%/12.5%/11.4% over the previous year. The company's 2023 performance report is in line with this forecast. In 2023, the dividend rate increased sharply by 61 pct to 85%, with a total dividend of 770 million yuan, exceeding market expectations.

The main views of Dongwu Securities are as follows:

2023H2 related party business continues to grow rapidly, and third-party business is gradually picking up.

1) Hot pot seasoning: 2023H2's revenue was 2,444 billion yuan (yoy +8.7%), with an overall gross profit margin of 34.9% (up 2.0pct month-on-month). Among them, related parties continued to benefit from the recovery of Haidilao's business, with revenue of 1.06 billion yuan (yoy +34.5%), gross profit margin 16.5% (23H1-1.8pct), and third party revenue of 1.38 billion yuan (yoy -5.2%, mainly due to the company actively adjusted some products in the second half of 23, and failed to grasp the peak sales season).

2) Chinese polymodulation: 2023H2 revenue of 260 million yuan (yoy +13.3%), accounting for 7.3% of revenue and 32.5% gross profit margin. 3) Convenient fast food: Under the recovery of the scenario, demand for home consumption weakens. 2023H2 revenue is 810 million yuan (yoy -16.3%, revenue decline narrower than 2023H1), accounting for 23.1% of revenue, and an overall gross profit margin of 25.8%, +2.6 pct month-on-month. In 2024, we will focus on the “go home and cook” series of products, and the channel continues to sink. In 2023, the company introduced 24 new hot pot condiments, 37 Chinese polymixes, and 40 convenient fast food products. In total, the SKU surpassed 200 models.

2024 started smoothly, product matrices & channel diversified development.

According to channel data, the company's third-party business grew by double digits year-on-year in January-February, faster than competitors. Looking ahead to the whole year, on the product side, the company has increased product team incentives, incorporated clean labels and zero additives into R&D plans, and continued to enrich the product matrix. On the channel side, the company will develop all categories of channels, including large and small B-side (new channels & new customer expansion, launch targeted marketing strategies and service systems), online (restructuring teams, clarifying business development ideas, and accounting for about 7% of third-party business in 2023, increasing space), and overseas (Thailand factory put into operation, recruiting new localization teams, further enriching the product matrix). Channel expansion is expected to become a prominent growth point this year. In addition, related party businesses will continue to enjoy Haidilao's recovery, direct management & franchise expansion dividends, and maintain steady growth.

2023H2 gross margin has been optimized, and there is still room for improvement in profitability.

The gross profit margin for the full year of 2023 was 31.6%, yoy+1.4pct, sales expenses ratio 9.6%, yoy-0.9pct, and management expenses increased by 0.8 pct to 4.5% year-on-year. 2023H2's overall gross profit margin was 32.4% (2023H1+1.8pct), mainly driven by declining raw material prices & product structure optimization; the sales expense ratio was 2023H1+0.7pct month-on-month, mainly due to the company strengthening the promotion of new products, and the management cost ratio was 2023H1-1.6pct month-on-month.