CICC released a research report stating that it essentially maintains its profit expectations for ZHOU HEI YA (01458) for 2025 and 2026. The firm keeps its target price at HK$3.0. The current stock price corresponds to 24.7x/22.3x P/E for FY25/26, while the target price implies approximately 32x/29x P/E for FY25/26. The current price offers about 28.8% upside potential to the target price, and the firm maintains its outperform rating.

CICC's main views are as follows:

**Company Updates** In 1H25, the company showed same-store improvements at the retail level, and cost control for emerging channels was well managed. The company emphasizes efficiency enhancement. The firm expects that in 3Q25, the company will continue to improve same-store quality and undertake product optimization and channel distribution activities in emerging channels.

**1H25 Same-Store Improvements, Packaged Food Drives Faster Growth in Other Revenue**

1) Retail stores: The company continued its strategy of improving store quality and focusing on single-store revenue this year. Based on store revenue divided by average number of stores during 1H25, the average single-store revenue for self-operated stores and franchised stores increased by 12% and 14% year-over-year, respectively.

2) Other revenue (mainly distribution income from packaged foods and similar products) grew 27.5% year-over-year to RMB70 million in 1H25. The firm expects the packaged food business to be in a steady development period.

The gross margin in 1H25 increased by 3.3 percentage points year-over-year to 58.6%, which the firm estimates is mainly due to low raw material prices and improved store quality. Overall, the net margin attributable to shareholders in 1H25 was 8.8% (up 6.2 percentage points year-over-year compared to 1H24 and up 3.3 percentage points quarter-over-quarter compared to 2H24).

**2H25 Company Continues to Implement Single-Store Quality Improvement, Optimize Products, and Refine Emerging Channel Promotion Strategies** The firm expects continued scale expansion:

1) Store-level emphasis on store quality and operational efficiency: The company prioritizes single-store quality and will continue store renovation and optimization in 2H25, strengthen professional management and services in store operations, and enhance private domain member operations, deepen takeaway cooperation, and utilize store live streaming and other emerging channels to convert online traffic to offline stores. Store quality improvement has been steadily positive from 2H24 to 1H25, and the firm expects store profitability to further improve in 2H25.

2) Continued expansion of "braised food+" packaged products: The company will summarize product sales and distribution data from emerging channels in 1H25, optimize and iterate product and channel matching, and optimize product matrices with high channel compatibility for supermarkets, membership stores, snack retailers, convenience stores, and other channels. The firm expects the scale expansion of emerging channels to further accelerate in 2H25-2026.