Yihai is a leading and fast-growing compound condiment manufacturer in PRC. This May, its biggest related party Haidilao has submitted hearing materials to HKEX, which showed that Haidilao restaurants would continue to expand at a high speed. As Haidilao`s exclusive provider of hot pot soup flavoring products, Yihai is expected to benefit from the quick expansion of Haidilao restaurants. We thus increase Yinhai`s EPS forecast to be RMB0.358 in FY18E, assuming 40x PE, and give target price of HKD16.47. (Exchange rate=0.87RMB/HKD) (Closing price at 6 Aug 2018)
Haidilao underpins future sales hike. In 2017, revenue from related party Haidilao reached RMB915mn (+51% YoY). Haidilao, owning 273 hot pot restaurants in PRC with daily sales per shop amounting to RMB140k and SSSG keeping 14% in recent 3 years, has submitted listing documents to HKEX in May. It indicates that the number of newly opened stores will total to 180~220 in 2018E. We thus highlight the great potential for Yihai`s sales hike, given it is the exclusive provider of hot pot soup flavoring products to Haidilao.