Yihai: Initiating on China’s Largest Hot Pot Condiments Maker With No-Moat Rating, HKD 15.60 FVE

We initiate coverage on Yihai International with a no-moat rating as we think the company has yet to build entrenched retailer relationships that could last beyond the next decade. The company leverages the Haidilao brand name to achieve a reduction in sales and marketing expenses as well as distribution expansion. However, the hot pot restaurants sector is highly competitive, and the popularity of the Haidilao brand beyond the next decade remains uncertain, which clouds the return on investment capital outlook for Yihai. Our fair value estimate of HKD 15.60 per share implies 17 times 2025 price/earnings, 9 times enterprise value/EBITDA, and a 5.0% dividend yield. We think the shares are fairly valued.