1. Introduction

China’s No.1 hotpot chain Haidilao Group finally filed for IPO on 17th May 2018 after almost 4 years of IPO rumours and sending its sole soup base condiment supplier Yihai International into its all-time high since listing. Considering its fairly predictable of cash flow and bright growth prospects, there is little wonder why it is trading at over 50x P/E in today’s volatile market environment.

Despite trading close to it’s all-time high level, there seems to be some room for its share price based on a DCF implied value of HKD 21.1, representing 22% upside. It is still relatively cheap on a forward P/E of 37x.

2.   Simple business model

Yihai is Haidilao’s soup base condiment production arm which was spun-off and listed on the main board of HKex in July 2016.

The company’s products are mainly made from soya bean oil, animal oil, chilli, …