CGSI RESEARCH
July 10, 2025

Foshan Haitian Flavouring: Navigating Slower Growth, Margin Expansion, and Strategic Innovation in 2025

Executive Summary

Foshan Haitian Flavouring, the leading condiments producer in China, enters the second half of 2025 facing a complex market environment. While regulatory changes and subdued consumer sentiment have dampened sales growth, the company’s strategic pivot toward product innovation and operational efficiency positions it for resilience and margin improvement. This in-depth analysis, based on the latest brokerage research from CGSI RESEARCH, explores Haitian’s sales outlook, margin dynamics, dual listing in Hong Kong, financial performance projections, and key risks and catalysts for investors.

Key Highlights at a Glance

• Regulatory Impact: New government rules on official dining drag on catering channel demand.
• Slower Growth: FY25F revenue growth now forecast at 6.2% YoY (vs. 9.5% in FY24).
• Margin Expansion: Net profit margin expected to rise to 24.6% in FY25F, driven by lower soybean prices and improved product mix.
• Hong Kong Dual Listing: Raised HK\$10 billion through new share issuance in June 2025.
• Target Price Revision: DCF-based target price cut to RMB 51, but Add rating reiterated with 32.1% upside from current levels.

Market Backdrop: Regulatory Shifts and Consumer Sentiment

On May 18, 2025, the Chinese government issued revised Regulations on Practicing Thrift and Opposing Waste in Party and Government Organs. These rules prohibit high-end cuisine, cigarettes, and alcoholic beverages for official working meals. In some localities, these restrictions have been interpreted even more stringently, effectively banning all official dining out. This shift has directly impacted catering demand, a channel that comprised approximately 60% of Haitian’s FY24 revenue. Channel checks confirm that since mid-May 2025, dining out demand has weakened, leading to a slowdown in condiment sales.

Sales Growth Outlook: 2025 and Beyond

Haitian’s revenue growth trajectory has moderated. The company now expects FY25F sales to grow by just 6.2% YoY, down from the previous expectation of 10.5%. In 2Q25F, sales growth is projected at 5% YoY, a deceleration from 8% in 1Q25. This is primarily attributed to weaker catering demand, with growth supported by customized B2B product sales and new B2C product launches.

Key Forecast Revisions

Despite this slowdown, Haitian continues to invest in product innovation and channel upgrades, particularly focusing on organic variants of glutinous rice vinegar and cooking wine for household consumption.

Margin Expansion: Leveraging Lower Soybean Prices

A silver lining for Haitian is the decline in domestic soybean prices, which dropped 8% YoY in 1H25, reaching RMB 4,387 per ton as of June 30, 2025. These reductions translated into gross profit margin expansion, with FY25F GPM forecast at 38.0% (up 1.0 percentage point YoY). Net profit margin is set to rise by 1 percentage point to 24.6%, reflecting both raw material cost savings and ongoing product mix improvements.

Profitability Projections

Financial Performance: A Closer Look

Income Statement Highlights

Balance Sheet and Cash Flow

Haitian maintains a robust balance sheet, highlighted by strong cash reserves and minimal debt. As of year-end 2025F, cash and equivalents are forecast at RMB 24,354 million, with no long-term debt and net gearing improving further to -71.5%. Free cash flow to equity is expected to reach RMB 7,012 million in FY25F, supporting continued dividend payouts and strategic investments.

Hong Kong Dual Listing: Strengthening Capital Base

In June 2025, Haitian completed a dual listing on the Hong Kong Stock Exchange, issuing 279 million new shares at HK\$36.3 per share. This move raised approximately HK\$10 billion, enhancing financial flexibility. The share issuance increased outstanding shares by 5%, resulting in a modest 3.6% core EPS dilution for FY25F. However, the capital injection is expected to support future innovation and market expansion.

Valuation and Target Price

Following the downward revision in sales and earnings forecasts, the DCF-based target price is cut to RMB 51 (WACC 8%, Terminal Growth 3%), representing a 32.1% upside from the current price of RMB 38.60. The Add rating is reiterated, reflecting confidence in the company’s leading market position, adaptability, and innovation capabilities. Haitian’s market capitalization stands at US\$31,160 million, with a free float of 26%.

Operational and Market Metrics

• Market Share: 4.5% of China’s condiment retail sales in FY23.
• Major Shareholder: Guangdong Haitian Group Co Ltd (58%).
• Top Management Equity: 16% direct ownership.
• Current Shares Outstanding: 5,840 million.
• Dividend Payout Ratio: Steady at ~75%.

Key Product Segment Trends

Risks and Catalysts

• Downside Risks: Volatility in international soybean prices impacting domestic costs; intensifying price competition in the condiments market.
• Re-rating Catalysts: Stronger-than-expected demand for Haitian products and faster recovery in regional sales markets.

Valuation Methodology

The target price is derived using a DCF model with key assumptions:

• Beta: 0.8
• Risk-free rate: 3%
• Risk premium: 6%
• Tax rate: 16%
• WACC: 8%
• Terminal growth rate: 3%

The enterprise value is RMB 274,079 million, with an equity value of RMB 295,361 million, and 5,840 million shares outstanding.

Stock Performance and Investor Guidance

• Consensus Ratings: 30 Buy, 5 Hold, 0 Sell
• Price Performance (as of report date):
  • 1 month: -8.4%
  • 3 months: -8.5%
  • 12 months: +14.1%
• Relative Performance to SHCOMP:
  • 1 month: -11.1%
  • 3 months: -18.1%
  • 12 months: -3.9%

Conclusion: Long-Term Value Amid Short-Term Challenges

Foshan Haitian Flavouring remains a dominant force in China’s condiments sector, with a proven ability to navigate regulatory and macroeconomic headwinds. While near-term growth is pressured by regulatory changes and weak catering demand, the company’s focus on innovation, operational efficiency, and channel diversification underpins continued margin expansion and robust cash generation. The Add rating and 32.1% upside to target price reflect confidence in Haitian’s long-term value proposition, making it a compelling watch for investors seeking exposure to China’s evolving food and beverage landscape.