BOC International has released a research report noting that Yihai International (01579) delivered impressive results in its first half of 2026. During the period, the company achieved revenue of RMB 3.35 billion, up 14.0% year-on-year, while net profit attributable to shareholders reached RMB 380 million, representing a 21.4% increase from the previous year. The company's half-year performance was bolstered by enhanced operational efficiency and the visible effects of its channel reforms, with the stock also exhibiting notable characteristics of high dividend payouts and a high dividend yield. BOC International has consequently maintained its "Buy" rating on the company.

BOC International's key viewpoints are as follows: In the first half of 2026, increased demand from related parties for compound seasonings and convenience foods drove double-digit revenue growth. The company posted revenues of RMB 3.35 billion, with third-party and related-party revenues reaching RMB 2.28 billion and RMB 1.0 billion, respectively. These segments grew at 7.8% and 15.9%, respectively, with related parties accounting for 30.5% of total revenue, an increase of 1.5 percentage points year-on-year. A breakdown of volume versus price reveals that sales volume growth outpaced price increases in the hotpot base business. The company's hotpot base and compound seasoning sales volumes grew by 13.7% and 22.0% year-on-year, respectively, while unit prices rose by 0.5% and fell by 5.6%.

(1) Hotpot base business: In the first half of 2026, the company's hotpot base business generated total revenue of RMB 1.92 billion, up 14.3% year-on-year. Revenues from related parties and third parties grew by 6.8% and 20.5%, respectively, representing 42.1% and 57.9% of the segment's revenue. The strong growth in third-party hotpot base revenue is primarily attributed to the gradual ramp-up of customized products in the channel, coupled with upgrades to hotpot dipping sauces, beef tallow, and tomato bases, which collectively drove third-party revenue expansion.

(2) Compound seasoning business: In the first half of 2026, the compound seasoning business generated total revenue of RMB 560 million. Revenues from related parties and third parties grew by 142.8% and 3.0% year-on-year, respectively. Related parties accounted for 17.7% of the segment's revenue, a 9.3 percentage point increase year-on-year. The high growth in related-party compound seasoning revenue was mainly due to increased demand for Maocai soup pack products, driven by the expansion of related-party clients' food delivery operations. In contrast, third-party compound seasoning growth remained sluggish, hampered by intense industry competition and the difficulty of creating blockbuster products. The company is continuing to explore new flavors and products while proactively adjusting its internal product mix, having ceased sales of certain low-margin products, which has impacted the segment's performance.

(3) Convenience foods business: In the first half of 2026, the convenience foods business generated revenue of RMB 790 million, up 11.9% year-on-year. Revenues from related parties and third parties grew by 42.7% and 8.9%, respectively, with third parties accounting for 88.4% of the segment's revenue, down 2.5 percentage points year-on-year. The faster growth in related-party convenience food revenue was mainly linked to increased sales of hotpot ingredients and leisure snacks at Haidilao, while new products such as self-heating hotpots and noodle items also contributed to revenue growth during the period.

In addition to the adjustments in the third-party direct sales channel already showing results, the company's overseas business has entered a production capacity ramp-up phase and continues to achieve high revenue growth. (1) When analyzing the third-party business by channel, it primarily consists of distributor and direct sales channels. Over the past two years, traditional supermarkets have been undergoing renovations, foot traffic in traditional wet markets has declined, and private-label products in new retail channels have shown rapid growth trends. As a result, the company has proactively strengthened its development and cooperation with KA (Key Accounts) channels on customized products, while continuously refining its model for serving small B (business) clients by offering standardized, diversified products that precisely match channel demand. In the first half of 2026, third-party distributor channel revenue reached RMB 1.62 billion, down 6.1% year-on-year, though the pace of decline narrowed significantly compared to 2025, signaling signs of stabilization. Direct sales channels generated total revenue of RMB 720 million, aided by new contributions from direct-sales supermarkets, and accounted for 30.8% of third-party business, up 14.5 percentage points year-on-year. A closer look at direct sales channels shows that direct-to-supermarket revenue was RMB 350 million, representing 15.1% of third-party revenue. Revenue from restaurant and food company clients reached RMB 180 million, up 17.6% year-on-year, supported by the company's ongoing expansion of small B channels and an increase in the number of partner merchants. E-commerce and one-off sales events contributed revenues of RMB 180 million (+2.8%) and RMB 5 million (-1.2%), respectively.

(2) In the first half of 2026, overseas channel revenue reached RMB 280 million, up 46.8% year-on-year, accounting for 8.5% of the company's total revenue. With overseas factories gradually entering their capacity release phase and the increasing range of their supply coverage, the company has leveraged its supply chain advantages to expand direct-connection models in regions such as Singapore, Malaysia, and Thailand, thereby enhancing its overseas channel coverage and end-market reach. There is substantial room for further optimization in both capacity utilization and profitability for the overseas business going forward.

The company also benefited from lower raw material costs and internal operational optimization. (1) In the first half of 2026, the gross margin stood at 33.6%, up 4.1 percentage points year-on-year. The margin expansion is mainly attributable to lower raw material prices, improved production efficiency, and reduced spending on product discounts. Gross margins for hotpot bases, compound seasonings, and convenience foods increased by 4.2, 5.6, and 2.6 percentage points year-on-year, respectively, reaching 35.4%, 39.2%, and 26.6%. Related-party and third-party gross margins were 14.3% and 42.5%, up 0.6 and 2.9 percentage points year-on-year, respectively. The research firm believes there is limited room for further downside in related-party gross margins.

(2) Regarding expense ratios, the selling expense ratio and administrative expense ratio were 13.4% and 4.3% in the first half of 2026, up 0.8 percentage points and down 1.1 percentage points year-on-year, respectively. The increase in the selling expense ratio was mainly due to higher marketing and logistics expenses. In the first half of 2026, reductions in government subsidies and foreign exchange gains also weighed on profit performance. In summary, the net profit margin attributable to shareholders for the first half of 2026 improved by 0.7 percentage points year-on-year to 11.2%.

Risk warnings include macroeconomic downturn risk, slower-than-expected demand recovery, new product launches falling short of expectations, intensifying industry competition, and fluctuations in raw material costs.