Goldman Sachs: Yihai International AGM Minutes – Bullish on Double-Digit Growth and High Dividend Yield

Overview

This report is based on Goldman Sachs' notes from attending Yihai International Holdings’ (1579.HK) Annual General Meeting (AGM). Despite recent share price weakness due to investor concerns over related-party transactions and cost inflation, Goldman Sachs believes the company’s fundamentals remain strong and execution has improved. Key takeaways include: sustained double-digit growth in third-party sales, with overseas and B2B businesses emerging as key drivers; expected gross margin expansion in H1 despite potential volatility from non-operating items; and a commitment to high dividend payouts. Goldman Sachs reiterates its 'Buy' rating with a target price of HK$19.1.

Core views

Strong Sales and Channel Performance: Management indicated that May third-party sales trends were consistent with April, and year-to-date (YTD) trends align with the full-year target of double-digit growth. Overseas markets stood out notably, with YTD sales growth reaching 35–40%, primarily driven by rapid B2B expansion. The company expects its overseas B2B segment to surpass its 2C business in scale by 2026. It has successfully penetrated over 1,000 stores in Malaysia’s halal market and is expanding rapidly in Thailand. Domestically, small B2B clients are accelerating growth, while large clients maintain steady double-digit growth. Management believes B2B could eventually exceed related-party sales in the medium to long term. Wholesale channel inventory remains healthy and has further declined due to reduced channel loading. KA Channels and Supply Chain Advantages: The company has successfully executed its 'Two Direct' transformation (direct sales and direct supply), strengthening its position in Key Account (KA) channels. KA channel contribution continues to rise, with market shares across major KAs generally reaching 40–50%, and exceeding 50% in some cases. Management views its flexible supply chain as a strong competitive moat, enabling it to offer high-quality products at competitive prices when partnering with leading KA chains like Walmart. Additionally, category expansion is a key driver for scaling in KA channels, with new growth opportunities expected from customized hotpot bases and dipping sauces for KA clients starting July–August. Profitability and Cost Outlook: The company maintains its expectation of gross margin expansion in H1. Although reduced government subsidies (RMB 68 million in H1 2025) and RMB appreciation may lead to significant foreign exchange losses—impacting absolute net profit—the company still expects double-digit profit growth. In H2, edible oil prices have remained stable recently, with main cost pressures coming from beef and packaging materials (PET/corrugated paper). Packaging inventory coverage extends through May, and new procurement starting in June will adopt a more flexible monthly approach rather than locking in multi-month contracts. Management expects expenses to remain under control, with efficiency gains from production and channel investments helping offset higher spending on brand marketing and production innovation. Shareholder Returns: The company reaffirmed its commitment to shareholder returns, with a near-100% dividend payout ratio expected in H2 2025. Management noted that any potential overseas M&A would have limited impact on cash flow and dividends.

Analysis framework

Goldman Sachs analyzed management commentary from the AGM, combined with a detailed breakdown of sales channels (third-party, overseas, B2B, KA), cost structure (raw materials, packaging, FX), and financial metrics (gross margin, net profit, dividend yield) to assess the company’s operational resilience and growth momentum. The report pays particular attention to the short-term noise from non-operating items (e.g., government grants and FX gains/losses) on net profit, while emphasizing structural competitive advantages derived from supply chain efficiency and channel transformation. Valuation is based on relative P/E methodology, discounted using cost of equity.

Methodology notes

• Valuation MethodPE/PEG valuation

  Relative valuation based on forward P/E

  The report uses a 17x average 2027E P/E, discounted back to end-2026 using a cost of equity of 10.6% to derive the target price. This is a standard relative valuation approach, pricing the stock based on future earnings power versus market averages.

• Competitive & Strategic FrameworkMoat / competitive advantage

  Supply chain flexibility as a competitive moat

  The report highlights the company’s flexible supply chain as a powerful competitive moat, enabling it to deliver high quality at competitive prices and solidify relationships with major KA clients. This illustrates how operational efficiency translates into sustainable market advantage.

• Industry/Value Chain Analysis FrameworkUpstream-Midstream-Downstream Transmission

  Transmission of raw material price volatility downstream

  The report analyzes upstream cost pressures from raw materials (beef, PET, corrugated paper) and stable edible oil prices, and how they affect midstream manufacturing costs. It notes the company’s flexible procurement strategy to manage costs, illustrating how price transmission mechanisms along the value chain impact profitability.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Yihai International Holdings (1579.HK)

  Directly covered subject of the report

  Strengths

  Double-digit third-party sales growth, explosive overseas business, rising KA channel share, high dividend yield, supply chain moat

  Weaknesses

  Volatility in non-operating items (FX, subsidies) affecting short-term net profit, slowing related-party sales

  Risks

  Negative sentiment around prepared meals, intensifying competition in compound seasonings, significant raw material cost fluctuations, overseas execution risk, food safety issues

Key data

• 2026E P/E Ratio12.6xValuation level based on current share price
• 2026E Dividend Yield7.3%Attractive high dividend yield
• YTD Overseas Sales Growth35–40%Driven by rapid B2B expansion
• KA Channel Market Share40–50%Exceeding 50% in some cases; continuing to rise
• H2 2025 Dividend Payout RatioNear 100%Reaffirming high dividend commitment
• Target PriceHK$19.1Based on discounted 17x 2027E P/E

Impact & implications

The report argues that despite near-term headwinds from related-party transaction concerns and cost volatility, Yihai International’s fundamentals remain robust. Double-digit third-party sales growth validates its successful de-affiliation strategy, while explosive overseas growth opens new avenues for expansion. A high dividend yield and stable profit growth expectations enhance its appeal as a core holding in the current market environment. Supply chain flexibility not only mitigates cost risks but also strengthens pricing power and market share gains in KA channels.

Risks

• Worsening or unexpected negative publicity/sentiment in the prepared meals sector
• Intensifying competition in the compound seasonings market
• Further slowdown in related-party sales
• Greater-than-expected raw material cost volatility
• Execution risks in overseas operations
• Food safety-related issues (including potential risks in transportation and production)

What to watch

• New packaging material procurement cycle and pricing trends starting in June
• Sales performance of customized new products (hotpot bases, dipping sauces) in KA channels in July–August
• Whether overseas B2B business can surpass 2C scale by 2026
• Actual impact of non-operating items (government grants, FX) on H2 net profit