With a stable foundation and new growth drivers, comprehensive cost reduction and efficiency improvements have significantly enhanced profitability quality. ZHOU HEI YA (01458), the leading leisure braised food company, has once again outpaced the industry. On August 28, ZHOU HEI YA released its first half 2025 financial results, achieving total revenue of 1.223 billion yuan at the upper limit of guidance, with comprehensive profitability improvements. Shareholder net profit reached 108 million yuan, representing a remarkable 228% year-on-year growth, while net profit margin increased to 8.8%, up 6.2 percentage points compared to the same period last year. During this period, the company maintained strong cash flow with net operating cash flow of 211 million yuan, up 8.8% year-on-year.

In fact, the leisure braised food industry faced intense competition in the first half, with the three industry giants - ZHOU HEI YA, Juewei Foods, and Huangshanghuang - all experiencing performance adjustment periods. However, under the leadership of Zhou Fuyu, ZHOU HEI YA focused on improving store operation quality and diversifying channel expansion, accelerating overseas strategies to create new growth curves, effectively driving significant improvements in business resilience and profitability quality, standing out among the three giants.

ZHOU HEI YA demonstrates counter-cyclical capabilities, building an inimitable competitive moat across supply chain, product development, channels, and globalization that drives sustainable performance growth.

**Industry-Leading Performance with Significant Profit Growth**

ZHOU HEI YA's first half 2025 performance exhibits two crucial characteristics: first, revenue resilience with significantly improved single-store revenue under the store operation quality strategy; second, continuously improving profitability that leads peers with high-quality earnings and healthy operating cash flow.

On the revenue front, compared to peers, Juewei and Huangshanghuang saw revenue decline by 15.57% and 7.2% respectively in the first half, with decline rates 12.26 and 4.3 percentage points higher than ZHOU HEI YA's performance. Moreover, in terms of single-store revenue, ZHOU HEI YA demonstrated stronger performance with average single-store revenue of 427,000 yuan, up 17.1% year-on-year. Self-operated stores achieved single-store revenue of 452,600 yuan, up 12.7% year-on-year, realizing counter-trend growth.

As of June 2025, ZHOU HEI YA operated 2,864 stores, including 1,573 self-operated stores and 1,291 franchise stores, covering 292 cities across 28 provinces, autonomous regions, and municipalities in China.

In terms of profitability, ZHOU HEI YA comprehensively outperformed competitors. In the first half, Juewei's shareholder net profit declined 40.71% with a net profit margin of 6.21%, while Huangshanghuang, with smaller scale, achieved 26.9% growth in shareholder net profit with a net profit margin of 7.83%. ZHOU HEI YA's corresponding figures of 228% and 8.8% far exceeded peer levels.

As mentioned, the company effectively improved single-store revenue through its store operation quality strategy, simultaneously enhancing single-store profitability. The overall gross margin increased 3.2 percentage points to 58.6% in the first half.

Concurrently, ZHOU HEI YA continuously optimized various expenses through cost reduction, efficiency improvements, and refined management strategies. In the first half, financial expense ratio decreased 0.1 percentage point to 0.4%, selling expense ratio declined 1.5 percentage points to 38.6%, and administrative expense ratio remained stable at 9.5%. Additionally, the company's share of losses from associates as a percentage of revenue decreased 2.4 percentage points to 0.3%. These optimizations significantly enhanced the company's profitability.

More importantly, the company maintains very healthy profit quality. Receivables account for only 7.5% of revenue, while operating cash flow showed strong net inflows of 211 million yuan, up 8.8% year-on-year, demonstrating robust cash generation capabilities. As of June 2025, the company's interest-bearing debt consisted only of 84 million yuan in short-term bank borrowings, while cash and bank balances totaled 878 million yuan. This solid financial position provides a strong foundation for future development.

**Three-Dimensional Strategy Driving Performance Resilience**

ZHOU HEI YA's superior performance resilience and high profit growth compared to peers stems from closely following diversified consumer preference trends through comprehensive operational quality improvements across three dimensions:

First, store operations remain the core foundation. The company focuses on improving single-store operational quality through store optimization and rational geographic market positioning. Through store staff live streaming, membership programs, delivery services, public domain marketing, and late-night dining scenarios, the company comprehensively enhances store experience and appeal. For instance, the company established a "store staff-private domain" coordination mechanism, leveraging big data and digital tools for precision marketing while strengthening membership and private domain operations to improve member repurchase rates and loyalty. As of June 30, registered membership increased by 2.45 million, with member sales accounting for over 60% of total sales.

While stabilizing the core business, the company creates a second growth curve through multi-channel expansion. During this period, the company successfully collaborated with Sam's Club to customize and develop ZHOU HEI YA classic braised seasoning packets and flavored duck sauce, and reached strategic partnerships with Yonghui and Pangdonglai, effectively broadening new channel scenarios through vacuum-packed and bulk products. As multi-channel expansion progresses, this is expected to become a company growth highlight.

Meanwhile, ZHOU HEI YA's overseas business has successfully entered Malaysia and Singapore markets, with plans to continue expanding into Southeast Asia and other regions, providing long-term growth potential.

Second, high-quality products are fundamental to success. The company built a "classic + innovation" dual-drive system, maintaining high-quality standards while promoting optimization of classic products to create product differentiation barriers through distinctive flavors, launching new categories like sauced duck and braised squid. The company also focuses on Generation Z consumer demand changes, introducing diversified innovative products such as sauced duck wing roots and regional limited-edition Sichuan spicy duck necks.

The company actively incubates new brands, such as the "Ya Ya Ye" brand invested in during the first half, launching fresh coconut water to create a "braised food + beverage" one-stop experience. The company also established a joint venture with Sichuan Shentang Industrial Group to jointly develop "Ga Ga Xiang" series seasonings and convenience food products. Through building a diversified product matrix and incubating new brands while adapting to multi-channel layouts, the company establishes differentiated competitive advantages.

Finally, achieving balanced growth and profitability, the company firmly controls supply-side resources, establishing long-term stable partnerships with leading enterprises. Focusing on cost reduction, agile response, and quality improvement, the company advances supply chain refined operations through in-depth market analysis and supplier structure optimization, precisely capturing procurement windows to lock in cost advantages. The company also built its own logistics system, continuously optimizing costs and expenses to drive profit level improvements.

**Long-term Value Investment Appeal**

In fact, ZHOU HEI YA's high-quality development strategy embodies long-term business philosophy, with balanced growth and profitability ensuring business sustainability and stable scale expansion. With innovation as the engine, quality as the foundation, and users at the center, the company not only continues deep cultivation in traditional braised food sectors but also continuously breaks growth boundaries through diversified, internationalized, and youth-oriented multi-dimensional strategies, leading industry transformation and innovation.

In July this year, company founder and chairman Zhou Fuyu proposed using "heart" quality productivity to break through industry difficulties and reshape industry value. His two major initiatives - shifting from "upstream-downstream internal competition" to "industrial chain collaborative competition" and from "cost priority" to "quality priority" - have been widely recognized by the industry. These initiatives are based on current industry conditions and serve as powerful validation of the company's high-quality growth under long-term philosophy.

Overall, ZHOU HEI YA's "store foundation + new growth points + high-quality products" drives quality growth, while "supply chain management + comprehensive refined cost reduction and efficiency improvement" enhances profitability. This multi-dimensional strategic combination of "emphasizing quality and increasing efficiency" has been proven correct, effective, and operable.

In the first half, the company's single-store revenue and profitability both improved significantly. With continued industry recovery in the second half and multi-channel expansion, performance expectations will be fully realized.

From investment banking perspectives, research reports on ZHOU HEI YA's first half performance indicate the company's determined strategy and evident reform results, with new channels contributing incremental growth. Looking ahead to the second half, the company will continue actively connecting with new retail channels and expanding Southeast Asian markets. Through cost reduction, efficiency improvements, and refined management to optimize cost-effectiveness ratios, expectations are for dual improvements in revenue and profitability, warranting a "strong buy" rating.

Since the beginning of this year, ZHOU HEI YA's market value has increased over 40%. The company adheres to long-term development philosophy with industry-leading performance capabilities and continuously improving fundamentals with significantly enhanced profitability. Driven by overall market conditions, it offers high risk-reward ratios in both medium and short terms, while long-term investment value is prominent and may continue attracting value investors.