CICC published a research report indicating that due to Yan Palace's (01497) online channel expansion exceeding expectations, coupled with the company's ability to offset increased spending through improved gross margins, the firm has raised its 2026/27 earnings forecasts by 18%/19% to 227/233 million yuan. The investment bank has maintained its 6.95 Hong Kong dollar price target, which corresponds to 12.2x/11.6x P/E ratios for 2026/27, respectively. The current stock price trades at 9.6x/9.1x P/E for the same periods, offering a 27.5% upside to the target price.

CICC's key views are as follows:

First-half 2026 Results Exceeded Expectations

Yan Palace reported its first-half 2026 results: total revenue reached 1.182 billion yuan, representing a 16.5% year-on-year increase, while net profit hit 111 million yuan, up 47.1% from the same period last year. The earnings performance was better than the firm anticipated, primarily driven by the rapid development of new online channels in the first half of 2026, along with a low base for goodwill impairment from the prior year.

Strong Performance from Interest-Based E-Commerce Channels; Key Account and New Retail Expansion Helps Offset Traditional Offline Pressure

By channel, Yan Palace's online revenue in the first half of 2026 was 770 million yuan, a 21.7% increase year-on-year, accounting for 65.2% of total revenue. This was mainly driven by volume growth from interest-based e-commerce platforms like Douyin and growth in traditional e-commerce channels. Traditional offline channels continued to face pressure from a weak consumer environment, but the company's active expansion of key account and new retail channels provided a partial buffer. Offline channel revenue in the first half of 2026 was 412 million yuan, up 7.8% year-on-year.

By product, pure bird's nest product revenue grew 15.0% year-on-year, while revenue from "Bird's Nest +" and "+ Bird's Nest" products increased 30.8% year-on-year, indicating the company's ongoing product category expansion.

Stronger Revenue and a Low Profit Base, Combined with Gross Margin Improvement Offsetting Higher Spending, Drove Rapid First-Half Profit Growth

In the first half of 2026, Yan Palace's gross margin was 53.7%, up 1.7 percentage points year-on-year, mainly due to improved manufacturing efficiency and optimized cost structures. During the same period, the company increased its marketing and brand investment, resulting in a 1.5 percentage point rise in the sales expense ratio to 34.4%. The improvement in gross margin largely offset the increase in the expense ratio. Additionally, the company recorded a goodwill impairment of 9.179 million yuan in the first half of 2025, and this low base effect further boosted profit performance. Overall, net profit attributable to the parent company in the first half of 2026 was 111 million yuan, up 47.1% year-on-year.

Currently, the company's expansion into new channels and its enriched product matrix are driving rapid revenue growth. Looking ahead, if consumer sentiment recovers, the previously established channel layout could release incremental gains, while manufacturing efficiency improvements support operational performance. Key risks include: macroeconomic consumption weakness pressuring industry growth, a worsening competitive landscape, upstream raw material supply security, downstream channel inventory build-up, underperformance of new products, negative public sentiment regarding bird's nest, single-product dependence risk, and the sustainability of the company's post-listing strategy.