Yili (600887): China’s Dairy Leader Expands Development + Structural Upgrade Drives Sustainable Growth

Investment suggestions We continue to be optimistic about Yili, and even the overall growth of the dairy industry has improved and eased, but low-tier cities and villages still need to penetrate the space, and product structure upgrades will continue to drive the leading profitability to continue to improve.

Yili has the advantages of a complete product matrix, outstanding single product marketing and channel promotion capabilities, and strong offline channel control.

We estimate that the company’s revenue will be nearly 901.0 billion in 2019-2020, and the net profit attributable to the mother will reach 71.


75 billion.

Reasons The overall growth of the dairy industry has slowed down, the growth rate of the sub-sectors has improved, and the concentration has continued to tilt toward the leader.

According to Euromonitor data, the overall growth rate of the dairy industry will remain at 6%, room temperature dairy products are in the mature stage, and pasteurized milk and yogurt are still in the long-term growth stage. We are optimistic about the improvement of market penetration and consumption upgrade space in low-tier cities and villages.

Nielsen data shows that the current total of liquid milk top2 companies is 57%, and we believe that the industry’s concentration is still improving in the future.

Yili has leading products, channels and management advantages.

Yili has a diversified product matrix, large single product marketing and channel promotion capabilities, outstanding brand building and product upgrade capabilities.

The advantages of offline channels are outstanding, with a wide penetration range (the penetration rate of offline liquid milk in the country has reached 83.

9%), strong terminal control (deep distribution model), high penetration rate in low-tier cities and villages and towns (liquid milk penetration rate in third- and fourth-tier cities has exceeded 86%).

In management, the leadership team is experienced and the team is stable, which guarantees the possible sustainability of operating policies and strategies.

Both endogenous growth and extension of expansion have been achieved, and gross profit margin has remained stable.

In terms of endogenous growth, we expect the company’s liquid milk mid- to high-end products to continue to increase in proportion, diversified product lines bloom everywhere, driving revenue and profit growth.

In terms of extension, the company implements the global network weaving strategy and actively expands high-quality resources and new product markets.

The gross profit margin can remain stable through the upgrading of product structure as raw milk grows.

Earnings forecasts and estimates We maintain the company’s EPS forecasts for 2019-2020 at 1.

17 yuan / 1.

26 yuan, the current total corresponds to nearly 25/23 times P / E in 19/20.

Yili, as China’s largest dairy product leader, has upgraded its mid-to-high-end product structure, increased the market share of multiple categories, and deterministically replaced its profit margins with reference to the average scale of the dairy industry and the estimated premium brought by the company’s leading parts.According to the target P / E of 30/28 times of 2019/2020, maintain the target price of RMB 35 in the next 12 months.

7 yuan, the expected growth space is over 22.

5%, maintain Outperform rating.

Demand growth in risk industries was lower than expected, and market penetration in low-tier cities and villages was lower than expected; new product expansion was lower than expected, and market competition intensified; raw milk prices rose sharply; food safety.