Goldman Sachs: Haitian Flavouring’s third-quarter revenue flat, net profit falls as weaker condiment sales meet cost pressures

Why was profit markedly below expectations despite broadly flat revenue?

In the third quarter of 2026, Haitian Flavouring recorded revenue of 6.407 billion yuan, up 0.1% year on year and in line with Goldman Sachs’ expectations. Net profit was 1.19 billion yuan, down 15.4% year on year and markedly weaker than the 1% decline Goldman Sachs had previously expected.
Core operating profit fell 13% year on year, and the core operating margin declined to 21.2%, down 3.1 percentage points year on year and 1.8 percentage points below Goldman Sachs’ estimate. A lower-than-expected gross margin was the main reason core operating profit missed expectations, while a higher expense ratio added further pressure.
The net margin fell 3.4 percentage points year on year to 18.6%. A year-on-year increase in foreign exchange losses also weighed on net profit, partly offset by a 3.6 percentage point decline in the effective tax rate.

Third-quarter condiment revenue fell 0.9% year on year, compared with growth of 5.4% in the first half. This measure includes Amoy Food, which was consolidated following completion of the acquisition, though its contribution was small.
Soy sauce revenue fell 1.7% year on year, compared with growth of 4.6% in the first half; oyster sauce revenue fell 5.1%, compared with growth of 2.6% in the first half. Management attributed the weak performance to subdued restaurant demand and intensifying competition, and noted that oyster sauce has a relatively narrow range of uses.
Seasoning sauce revenue grew 2% year on year, remaining relatively resilient, while other sales revenue grew 19%, supporting total revenue. By region, third-quarter revenue fell 11% year on year in central China and 2% in eastern China, while southern China grew 6%.

The third-quarter gross margin was 37.3%, down 2.3 percentage points year on year and below the second-quarter level of 39.8%. Goldman Sachs believes higher soybean and PET prices may be the reason: their respective spot prices rose more than 20% and 50% year on year.
The company is evaluating price increase options but has not yet made a decision. As sales growth slowed, third-quarter selling expenses rose 5% year on year, and the selling expense ratio climbed to 7.8%; administrative expenses rose 8%, and the administrative expense ratio increased to 7.5%.
Management said elevated administrative expenses in the second and third quarters included one-off spending such as the headquarters relocation, as well as upfront investment in digitalization, AI applications and recruitment. It expects the full-year administrative expense ratio to normalize.

Given persistently weak restaurant demand recently, Goldman Sachs lowered its revenue forecasts for 2026–2028 by up to 3%. It also lowered its net profit forecasts for the same period by 5%–8%, factoring in raw material cost pressures continuing through the second half and potentially into 2027, as well as weaker expense leverage.
The fourth quarter faces a high comparison base, with revenue having grown 11% in the same period of 2025. Goldman Sachs expects the company to prioritize channel health, with shipments under year-on-year pressure in October and potentially recovering from November through December on pre-Lunar New Year stocking.
Goldman Sachs maintained its Buy rating on the H shares and Neutral rating on the A shares, and cut its 12-month H-share target price from HK$35.2 to HK$32.8. The bank expects H-share dividend yields of about 5% in 2026 and 2027, and noted that the company already has a share buyback plan of about HK$500 million.