Company Reports

Yili's revenue grew 3% year on year in the second quarter, but net profit declined due to inventory write-offs and goodwill impairment related to Ausnutria, an infant formula producer acquired in 2022.

Yili's first-quarter revenue and net profit increased 6% and 11% year on year, respectively, thanks to a recovery in liquid milk sales and strong momentum across the milk formula and ice cream segments. A subdued raw milk price was a tailwind to margin.

Yili is the largest dairy producer in China, having overtaken Mengniu in revenue and market share in the early 2010s. It has strategically targeted the ultra-high-temperature milk and yogurt segments, given the still underdeveloped cold-chain logistics in China, when dairy consumption and penetration were on its rise. The company’s nationwide distribution network has created scale and operational efficiencies have led to favorable working capital arrangement, which bolster its competitive advantage in a commoditized category. In our view, Yili is well aware that Chinese consumers expect quality and reliability from domestic dairy products following past industry scandals. As a result, the company has steered its product innovation and marketing efforts toward emphasizing functionality and nutrition value, which would also be conducive to increasing customer spend on its products. Yili has the highest number of patents in the dairy industry in China and has set up overseas research and development centers, which serve to enhance its competitiveness among peers in the long term. We think the company has fortressed a virtuous cycle of solid R&D, competitive offerings, scalable distribution, and efficient operations.

According to the Ministry of Agriculture and Rural Affairs, China's raw milk prices in the fourth quarter of 2025 fell 3% year on year to CNY 3 per kilogram.

Yili is the largest dairy producer in China, having overtaken Mengniu in revenue and market share in the early 2010s. It has strategically targeted the ultra-high-temperature milk and yogurt segments, given the still underdeveloped cold-chain logistics in China, when dairy consumption and penetration were on its rise. The company’s nationwide distribution network has created scale and operational efficiencies have led to favorable working capital arrangement, which bolster its competitive advantage in a commoditized category. In our view, Yili is well aware that Chinese consumers expect quality and reliability from domestic dairy products following past industry scandals. As a result, the company has steered its product innovation and marketing efforts toward emphasizing functionality and nutrition value, which would also be conducive to increasing customer spend on its products. Yili has the highest number of patents in the dairy industry in China and has set up overseas research and development centers, which serve to enhance its competitiveness among peers in the long term. We think the company has fortressed a virtuous cycle of solid R&D, competitive offerings, scalable distribution and efficient operations.

Yili is the largest dairy producer in China, having overtaken Mengniu in revenue and market share in the early 2010s. It has strategically targeted the ultra-high-temperature milk and yogurt segments, given the still underdeveloped cold-chain logistics in China, when dairy consumption and penetration were on its rise. The company’s nationwide distribution network has created scale and operational efficiencies have led to favorable working capital arrangement, which bolster its competitive advantage in a commoditized category. In our view, Yili is well aware that Chinese consumers expect quality and reliability from domestic dairy products following past industry scandals. As a result, the company has steered its product innovation and marketing efforts toward emphasizing functionality and nutrition value, which would also be conducive to increasing customer spend on its products. Yili has the highest number of patents in the dairy industry in China and has set up overseas research and development centers, which serve to enhance its competitiveness among peers in the long term. We think the company has fortressed a virtuous cycle of solid R&D, competitive offerings, scalable distribution and efficient operations.

Yili reported third-quarter results with revenue and net profit falling 1.7% and 4.2% year on year, respectively, dragged by soft liquid milk demand in traditional channels amid squeezed consumer pockets and the company's efforts to maintain lean channel inventory levels.

Yili reported first-half revenue growth of 3.4% year on year, while net profit declined by 4.5% due to absence of one-off asset disposal gain in 2024. Liquid milk revenue fell by 2.1%.

Yili is the largest dairy producer in China, having overtaken Mengniu in revenue and market share in the early 2010s. It has strategically targeted the ultra-high-temperature milk and yogurt segments, given the still underdeveloped cold-chain logistics in China, when dairy consumption and penetration were on its rise. The company’s nationwide distribution network has created scale and operational efficiencies have led to favorable working capital arrangement, which bolster its competitive advantage in a commoditized category. In our view, Yili is well aware that Chinese consumers expect quality and reliability from domestic dairy products following past industry scandals. As a result, the company has steered its product innovation and marketing efforts toward emphasizing functionality and nutrition value, which would also be conducive to increasing customer spend on its products. Yili has the highest number of patents in the dairy industry in China and has set up overseas research and development centers, which serve to enhance its competitiveness among peers in the long term. We think the company has fortressed a virtuous cycle of solid R&D, competitive offerings, scalable distribution and efficient operations.

Yili's 2024 earnings declined by 19% year on year due to goodwill and inventory impairments. First-quarter 2025 earnings, excluding one-off items, grew 24%.

Yili is the largest dairy producer in China, having overtaken Mengniu in revenue and market share in the early 2010s. It has strategically targeted the ultra-high-temperature milk and yogurt segments, given the still underdeveloped cold-chain logistics in China, when dairy consumption and penetration were on its rise. The company’s nationwide distribution network has created scale and operational efficiencies have led to favorable working capital arrangement, which bolster its competitive advantage in a commoditized category. In our view, Yili is well aware that Chinese consumers expect quality and reliability from domestic dairy products following past industry scandals. As a result, the company has steered its product innovation and marketing efforts toward emphasizing functionality and nutrition value, which would also be conducive to increasing customer spend on its products. Yili has the highest number of patents in the dairy industry in China and has set up overseas research and development centers, which serve to enhance its competitiveness among peers in the long term. We think the company has fortressed a virtuous cycle of solid R&D, competitive offerings, scalable distribution and efficient operations.

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.

Yili is the largest dairy producer in China, having overtaken Mengniu in revenue and market share in the early 2010s. It has strategically targeted the ultra-high-temperature milk and yogurt segments, given the still underdeveloped cold-chain logistics in China, when dairy consumption and penetration were on its rise. The company’s nationwide distribution network has created scale and operational efficiencies have led to favorable working capital arrangement, which bolster its competitive advantage in a commoditized category. In our view, Yili is well aware that Chinese consumers expect quality and reliability from domestic dairy products following past industry scandals. As a result, the company has steered its product innovation and marketing efforts toward emphasizing functionality and nutrition value, which would also be conducive to increasing customer spend on its products. Yili has the highest number of patents in the dairy industry in China and has set up overseas research and development centers, which serve to enhance its competitiveness among peers in the long term. We think the company has fortressed a virtuous cycle of solid R&D, competitive offerings, scalable distribution and efficient operations.

Wide-moat Yili delivered decent margins in the third quarter despite still-sluggish liquid milk sales volume, mainly attributable to low raw milk prices and recovering selling prices following the channel inventory correction in the first half. While consumer sentiment remained soft, management is optimistic on the recent measures suggested by the Ministry of Agriculture and Rural Affairs to stabilize the upstream dairy sector and downstream dairy demand, as well as China’s long-term dairy consumption trend. We lift our 2024 net income forecast by 4% despite a 1% cut to revenue due to slightly better margin assumption while leaving our long-term estimates largely unchanged. As a result, we retain our fair value estimate at CNY 33 per share, which implies 20 times 2025 price/earnings, 13 times EV/EBITDA, and 3.7% dividend yield. While near-term demand headwinds could persist, we think shares remain undervalued for investors willing to look through the current industry downcycle.

Yili is the largest dairy producer in China, having overtaken Mengniu in revenue and market share in the early 2010s. It has strategically targeted the ultra-high-temperature milk and yogurt segments, given the still underdeveloped cold-chain logistics in China, when dairy consumption and penetration were on its rise. The company’s nationwide distribution network has created scale and operational efficiencies have led to favorable working capital arrangement, which bolster its competitive advantage in a commoditized category. In our view, Yili is well aware that Chinese consumers expect quality and reliability from domestic dairy products following past industry scandals. As a result, the company has steered its product innovation and marketing efforts toward emphasizing functionality and nutrition value, which would also be conducive to increasing customer spend on its products. Yili has the highest number of patents in the dairy industry in China and has set up overseas research and development centers, which serve to enhance its competitiveness among peers in the long term. We think the company has fortressed a virtuous cycle of solid R&D, competitive offerings, scalable distribution and efficient operations.

We cut our 2024-28 net income projections by 7%-9% for wide-moat Yili following the disappointing 2024 interim results. Sluggish demand for liquid milk products has caused a 20% year-on-year decline in liquid milk revenue in the second quarter and over 40% decline in the company’s net profit. Management noted that increased selling expenses were required to lower channel inventory, which more than offset the positive impact from lower raw milk input prices. We lowered our fair value estimate to CNY 33 per share, from CNY 36, implying 18 times 2024 price/earnings, 13 times EV/EBITDA, and 3.9% dividend yield. We think shares are undervalued, but near-term sentiment could be dampened by soft liquid milk demand. Positively, Yili was able to deliver decent top-line growth of 17% year on year for the milk formula segment in the second quarter, thanks to share gain amids the shrinking total market size. We think this segment would be another crucial top-line driver for the company over the long run, underpinned by Yili’s strong channel execution and product development capabilities.

Yili is the largest dairy producer in China, having overtaken Mengniu in revenue and market share in the early 2010s. It has strategically targeted the ultra-high-temperature milk and yogurt segments, given the still underdeveloped cold-chain logistics in China, when dairy consumption and penetration were on its rise. The company’s nationwide distribution network has created scale and operational efficiencies have led to favorable working capital arrangement, which bolster its competitive advantage in a commoditized category. In our view, Yili is well aware that Chinese consumers expect quality and reliability from domestic dairy products following past industry scandals. As a result, the company has steered its product innovation and marketing efforts toward emphasizing functionality and nutrition value, which would also be conducive to increasing customer spend on its products. Yili has the highest number of patents in the dairy industry in China and has set up overseas research and development centers, which serve to enhance its competitiveness among peers in the long term. We think the company has fortressed a virtuous cycle of solid R&D, competitive offerings, scalable distribution and efficient operations.

We reviewed our assumptions ahead of the release of wide-moat Yili’s second-quarter results, and lower our net profit forecast for 2024 by 2% primarily due to softer-than-expected ice cream segment performance. While we think the liquid milk business would be pressured by near-term weak demand, we have already factored this into our estimates. Our longer-term earnings projections remain largely unchanged, and we retain our fair value estimate at CNY 36 per share, which implies 18 times 2024 price/earnings, 13 times EV/EBITDA and 3.9% dividend yield. We think Yili is attractive for investors who are willing to look past the near-term demand headwinds, underpinned by its decent 2024 dividend yield of 5.9% based on the current share price. We expect a recovery in demand for premium dairy products when consumer confidence rebounds in 2025.

Yili is the largest dairy producer in China, having overtaken Mengniu in revenue and market share in the early 2010s. It has strategically targeted the ultra-high-temperature milk and yogurt segments, given the still underdeveloped cold-chain logistics in China, when dairy consumption and penetration were on its rise. The company’s nationwide distribution network has created scale and operational efficiencies have led to favorable working capital arrangement, which bolster its competitive advantage in a commoditized category. In our view, Yili is well aware that Chinese consumers expect quality and reliability from domestic dairy products following past industry scandals. As a result, the company has steered its product innovation and marketing efforts toward emphasizing functionality and nutrition value, which would also be conducive to increasing customer spend on its products. Yili has the highest number of patents in the dairy industry in China and has set up overseas research and development centers, which serve to enhance its competitiveness among peers in the long term. We think the company has fortressed a virtuous cycle of solid R&D, competitive offerings, scalable distribution and efficient operations.

Its modest top-line trend remained as the primary drag to wide-moat Yili’s fourth-quarter 2023 and first-quarter 2024 results. The company decided to reduce channel inventories during the first quarter, which led to a sluggish top-line trend for liquid milk. We think this implies weaker-than-expected sell-out during Lunar New Year, which is supposed to see firm festive demand. We lowered our 2024 revenue projection by 4% to factor in the near-term headwind and think liquid milk sales could remain soft before a turnaround in the fourth quarter. Management also acknowledged the need to increase channel expenses for channel inventory reduction. Despite lower sales and higher expenses, the one-off investment income of CNY 2.58 billion due to the sale of a subsidiary’s shares in the first quarter boosted our 2024 net income projection by over 20%. However, our 2025-27 earnings forecasts are largely unchanged, and we retain our fair value estimate at CNY 36 per share, which implies 17 times 2024 price/earnings, 15 times EV/EBITDA, and a 4.0% dividend yield.