Yihai reported 1H25 revenue of Rmb2.9bn (flat YoY) and net profit attributable to owners of the company of Rmb309m (flat YoY), lower than our expectation, mainly due to lower-than-expected revenue of related parties business. We revise down our 2025 EPS forecast from Rmb1.07 to Rmb0.73, 2026 forecast from Rmb1.20 to Rmb0.76, and introduce 2027 forecast of Rmb0.78. Based on the DCF model, we lower our target price from HK$20.5 to HK$18, and with 22% upside potential, we maintain a Buy rating.
　　Revenue from third-party business increased 6.5% YoY, driven by the improvement of the product R&D mechanism, refined channel management, and the support of the continuously optimized supply chain system for the expansion of business-end and overseas operations. The proportion of third-party
　　business revenue in total revenue rose 4ppts YoY to 70%. By product category, hot pot base revenue increased 7.5% YoY, benefiting from the launch of new beef tallow hot pot bases and new-flavor dipping sauce products in response to consumer demands; Chinese-style compound condiments revenue increased 4.7% YoY, driven by the growing demand for compound condiments from B-end customers; instant ready-to-eat foods revenue increased 3.5% YoY, mainly due to the addition of new products in the home-cooked series.
　　Revenue from related parties decreased 12.7% YoY. mainly due to the adaptive
　　adjustment of product pricing for transactions with related parties and the update and iteration of product structure in line with consumer tastes. The proportion of revenue from related parties in the company's total revenue dropped 4 ppts YoY to 30%. Interim dividend. The company announced a dividend of Rmb0.2836 per share with a dividend payout ratio of 89%. Based on the closing price on August 25 of HK$14.78, the annualized dividend yield is c.4.2%. Maintain Buy. We like the company’s growth potential of business-end and overseas business.
　　Risks: lower-than-expected sales growth; increasing industry competition leads to lower margin.