According to Guangfa Securities' research, Yihai International (01579) achieved a historical yield of 15 times in three years from 2016 to 2019, taking advantage of the industry boom; however, its stock price experienced a roller coaster ride after 2020. After three years of defeats, the company has started again, the competition in the industry has become rational, and its leading position is firmly established. In addition, in 2023, both the company and Haidilao will significantly increase their dividend payout ratios to 90%. Considering the sufficient existing production capacity, low capital expenditure, and ample cash flow, high dividends may be supported.
Since 2022, Yihai International's performance has suffered due to a combination of factors such as pressure from related parties, weak demand for fast food, and falling out of favor of traditional Chinese flavor. The gap between Yihai International and Sichuan Teway Food Group has gradually widened. Considering the differences in channel genes and product matrices, Yihai International was more severely impacted by external environmental disturbances, but the slow organization restructuring and dull market response may be its core issues. The bank believes that opportunities of turnaround may arise this year with factors like growth of related parties, improvement of product quality vs. price, reform of incentive models, and channel improvement.
The bank expects that the company's net income attributable to shareholders will be 940/1060/1190 million yuan from 2024 to 2026, a year-on-year increase of +10.7%/+12.4%/+11.9% respectively. Referring to comparable company valuations and the company's potential for reform, the bank gives a target price of HKD 18.00 (corresponding to CNY 0.91) per share with a 2024 P/E ratio of 18 times, and initiates a "buy" rating.