Fundamentals Should Improve in 2025 for Yili and Mengniu, Following the Industry Trough Last Year

We review our 2024 earnings estimates for wide-moat Yili and narrow-moat Mengniu ahead of their results announcements in late April and late March, respectively. We maintain our forecasts and fair value estimate of CNY 33 per share for Yili. While we lowered Mengniu’s 2024 net profit estimate following the company’s profit alert due to impairment loss and share of losses in the upstream dairy subsidiaries, our fair value estimate of HKD 21 remains unchanged, as these losses are mainly noncash items. Although we believe both companies’ shares are undervalued, we prefer Yili over Mengniu given the former’s distribution strength in lower-tier cities and better execution in the infant milk formula segment. We also think the estimated 2025 dividend yield of over 4% at Yili’s current share price is decent.