Haidilao and Yihai International: Hong Kong Consumer Research and IFRS 16 Lease Analysis
Two linked research assignments examining the restaurant value chain, operating drivers, and the effect of IFRS 16 on the financial presentation of a lease-intensive restaurant operator.
Completed during an internship at China eCapital. The analysis and research outputs were completed and reviewed by a partner or supervisor.
China eCapital (易凯资本)
Background and Core Question
Haidilao is a leading restaurant operator in China's hotpot sector. Yihai International is its core supplier of hotpot condiments and compound seasonings. The two companies occupy connected positions along the restaurant value chain.
This case combines two linked internal research assignments. The first is a structured equity analysis of both companies, covering industry dynamics, business models, and financial performance from 2019 to 2024. The second is a focused examination of how IFRS 16 affects the financial presentation of Haidilao, a restaurant operator with a lease-intensive store network.
Under IFRS 16, former operating lease expenses are replaced in the income statement by depreciation of right-of-use assets and interest on lease liabilities, affecting expense classification, reported margins and cross-company comparability. For a company whose store network is built largely on leased premises, these accounting changes affect how profitability and cost structure are presented — even though the underlying lease-payment obligation is unchanged in contractual terms.
Work Completed
Work Completed
- Public-information collection and structuring.
- Restaurant-industry and company analysis.
- Haidilao and Yihai International business-model comparison.
- Financial-statement and operating-driver analysis.
- IFRS 16 lease-accounting analysis.
- Research writing and supporting visual preparation.
Research Context
- Two internal research assignments completed during the China eCapital internship.
- The analysis and writing were completed in full.
- The work used public-company information.
Review
- Reviewed internally by a partner or supervisor.
Industry Structure and Operating Model
The analysis began by positioning the hotpot-restaurant industry: market scale, chain-restaurant penetration as a structural trend indicator, and the competitive landscape of national leaders versus regional challengers. Understanding the industry's supply-chain cost structure — particularly the role of centralised condiment and seasoning procurement — was essential to the subsequent company-level work.
Restaurant–Supply-Chain Relationship
Haidilao and Yihai International form a connected pair along the restaurant value chain. Haidilao operates a lease-intensive restaurant network; Yihai supplies it with hotpot condiments and compound seasonings while also expanding its third-party customer base. Analysing the two companies together reveals operational linkages — Haidilao's store-network cycle affects Yihai's related-party revenue — and structural shifts such as Yihai's third-party diversification, which serves as a proxy for supplier independence.
Restaurant Value-Chain Relationship
Haidilao and Yihai International occupy connected positions along the hotpot-restaurant value chain. Yihai supplies hotpot condiments and compound seasonings to Haidilao while also expanding its third-party customer base — a structural shift relevant to assessing supplier dependence and diversification.
Conceptual diagram; no numerical evidence is presented.
Source: public company filings. Haidilao (HK:6862) and Yihai International (HK:1579) are publicly listed companies.
Financial and Operating-Driver Analysis
The financial analysis covered multi-year revenue and profitability trajectories for both companies. For Haidilao, this included evaluating the store-network cycle: expansion, the contraction-driven 'Woodpecker Plan,' and subsequent recovery. For Yihai International, the core indicator was the evolution of related-party (Haidilao) versus third-party revenue share — a measure of customer diversification. Comparing the two companies' revenue and profitability trajectories across the same period highlighted the different volatility profiles of a restaurant operator and its upstream supplier.
IFRS 16 and Lease-Cost Interpretation
IFRS 16 does not alter the contractual cash-payment obligation under a lease, but it changes how lease-related expenses are recognised in the income statement and how cash flows are classified. For Haidilao, whose store network is built largely on leased premises, the standard replaces a straight-line operating lease expense with depreciation of right-of-use assets and interest on lease liabilities. This front-loads the total lease-related charge in early years and reclassifies expenses in a way that affects reported operating profit, EBITDA, and fixed-cost ratios.
The analysis decomposed Haidilao's lease-cost structure, examined fixed-cost ratio trends before and after IFRS 16 adoption, and benchmarked lease-intensity metrics against comparable companies. A macroeconomic overlay considered how the interest-rate and rental-market environment affects lease-heavy business models.
How IFRS 16 Changes Lease Expense Recognition
IFRS 16 splits former operating lease payments into depreciation of right-of-use assets and interest on lease liabilities, changing how EBITDA, operating profit and net profit are presented. The standard does not alter the underlying contractual lease-payment obligation. For a lease-intensive restaurant operator, understanding this transformation is essential to separating accounting-presentation effects from changes in operating efficiency.
Income statement: expense classification changes — operating lease expense is replaced by depreciation and interest, affecting reported operating profit and EBITDA.
Balance sheet: right-of-use assets and lease liabilities are recognised, increasing reported assets and liabilities.
Analytical implication: reported movements must be separated from underlying operating changes. Cross-period and cross-company comparisons require adjusting for the accounting presentation.
Conceptual diagram; no numerical evidence is presented.
Illustrates IFRS 16 expense reclassification and recognition logic. Not Haidilao-specific financial data.
Research Synthesis
The two assignments together present a connected analytical picture: industry structure and operating model assessment, financial and operating-driver analysis across two linked companies, and a focused examination of how accounting presentation under IFRS 16 affects the interpretation of a lease-intensive restaurant business. The work required distinguishing between changes in operating substance and changes in accounting presentation — a skill directly relevant to equity research, credit analysis, and investment decision-making.
Key Judgements and Challenges
Distinguishing operating substance from accounting presentation
IFRS 16 does not alter the contractual cash-payment obligation under a lease. It changes how lease-related expenses are recognised in the income statement and how cash flows are classified. The analysis required separating the accounting-presentation effects from changes in underlying operating efficiency.
Operating leverage in a lease-intensive store model
A large leased-store network implies a high fixed-cost base, which amplifies the effect of revenue changes on profitability. The analysis assessed earnings sensitivity and risk exposure by considering the store operating cycle alongside cost-structure characteristics.
Related-party transactions and customer mix
Changes in the share of Yihai International's revenue derived from Haidilao can be used to assess dependence on a major related customer and the expansion of third-party business. The analysis distinguished short-term revenue fluctuations from longer-term shifts in customer structure.
Deliverables and Skills Demonstrated
The project produced a structured equity-research analysis, an IFRS 16 lease-accounting study, five analytical charts, and internally reviewed research conclusions. The work demonstrates capability in Hong Kong-listed company research, consumer-sector analysis, business-model and supply-chain evaluation, financial-statement interpretation, interpretation of accounting-policy effects, and research communication through charts and written analysis.
Disclosure
This case combines two internal research assignments completed during an internship at China eCapital and reviewed by a partner or supervisor. The analysis is based on publicly available company information. It was not an external client engagement, and no investment outcome is claimed. Exact figures with unresolved unit-conversion risk have been excluded.