Summary of Yihai International Conference Call Company Overview - **Company**: Yihai International - **Date**: September 12, 2025 Key Points Industry and Market Dynamics - **Butter Products**: Achieved approximately 20% growth due to low-priced product strategy and expansion into lower-tier markets [2][3] - **Instant Food Products**: High-priced products like small hot pots showed weak performance due to price sensitivity, while low-priced instant foods in the 7-8 RMB range, such as the "Home Cooking" series, gained popularity [2][3] - **Seasoning Market**: Characterized by regional flavor preferences, with few national bestsellers; the company adapts products to local tastes through small B-end partnerships [2][8] Growth Drivers - **Geographic Expansion**: Growth driven by expansion into new regions and customized collaborations with KA channels, leading to double-digit growth in products like fish seasoning and 24 dishes [3][4] - **Small B Customer Strategy**: Focus on direct engagement with small B customers to enhance growth potential, with a dedicated team to address regional taste variations [5][6] - **Product Development**: Sales-driven product development allows for timely market feedback, improving new product success rates [10] Financial Performance - **Revenue Contribution**: In the first half of 2025, revenue from food companies was 155 million RMB, primarily from large B customers, while small B customers contributed around 10 million RMB [5] - **Profit Margins**: Small B customers have higher profit margins (up to 30%) compared to large B customers, which could enhance overall profitability as the small B segment grows [5] Future Outlook - **Overseas Market Expansion**: The Thai factory is set to produce localized products, with a focus on enhancing brand recognition and product diversity in Southeast Asia [16][20] - **Cost Management**: Efforts to reform third-party C-end channels to improve profitability and reduce costs [4][19] - **Sales Strategy**: Direct sales to KA channels and reduced reliance on distributors to enhance margins and product alignment with market needs [14][12] Challenges and Considerations - **Price Stability**: Seasoning prices have remained stable, with a focus on maintaining high price segments while introducing low-priced products selectively [11] - **Market Acceptance**: Local acceptance of foreign brands in overseas markets remains a challenge, impacting production capacity utilization [17] - **Investment in Overseas Operations**: Higher costs associated with overseas operations due to staffing and regulatory requirements, with plans to increase marketing efforts as business scales [19] Performance Projections - **Second Half Expectations**: Anticipated double-digit growth in third-party business, with potential improvements in associated revenue due to lower base effects from the first half [21]

Core Viewpoint - The company's 1H25 performance aligns with expectations, showing stable revenue and profit growth despite challenges in certain segments [1][2]. Financial Performance - The company reported revenue of 2.927 billion yuan, a year-on-year increase of 0.02%, and a net profit of 309 million yuan, up 0.4% year-on-year, with a payout ratio of 89% [1]. - The gross profit margin decreased by 0.5 percentage points year-on-year, primarily due to a decline in the gross margin from related parties and an increase in the B-end business proportion [2]. Business Segments - Revenue from related parties fell by 12.7% year-on-year, impacted by weak demand from Haidilao restaurants, price reductions, and changes in product structure [1]. - Third-party revenue remained stable, increasing by 6.5% year-on-year, with specific product categories like hot pot base, compound seasonings, and instant food showing growth rates of 7.5%, 4.7%, and 3.5% respectively [1]. - The B-end business saw significant growth, with revenue increasing by 131.7% year-on-year, supported by the establishment of a dedicated sales team for B-end products [1][2]. Market Outlook - The company expects double-digit growth in third-party revenue for the full year, driven by continued strong performance in the B-end and overseas markets [2]. - The overseas business grew by 34% year-on-year, with expectations for third-party overseas business to increase by over 50% [1]. Profitability and Cost Management - Selling expenses increased by 0.6 percentage points year-on-year, mainly due to higher logistics costs and an increased direct delivery ratio to key customers [2]. - Management expenses rose by 0.5 percentage points year-on-year, attributed to an increase in factory staff [2]. Earnings Forecast and Valuation - The earnings forecast for 2025 has been raised by 3% to 820 million yuan, while the 2026 forecast remains unchanged [3]. - The target price has been increased by 20% to 18 HKD, reflecting a valuation of 21/19 times the P/E for 2025/2026, indicating a 22% upside potential [3].