Firm market position
Investment Thesis
Liquid milk sales driven by UHT milk. Liquid milk accounts for 77% of FY21 revenue, comprising UHT milk, yogurt, milk beverages, and more. We expect UHT white milk to remain the key driver, supported by a rise in consumption per capita, an increase in the health proposition, and a rise in disposable income.
Infant formula propelled to 2nd place in terms of market share. Competition in infant formula has been fierce, with the rapid changes in regulations. With the consolidation of Austnutria, we expect Yili’s market share to propel it to being the second-largest domestic infant formula player in China, after Feihe.
Emerging categories see encouraging trends. Yili has been investing in developing new products such as pasteurised milk, cheese, and butter to capture the fast-growing trends in these categories. Despite limited contribution at this juncture, we expect these products to continue to enrich Yili’s strong dairy portfolio in the medium term.
Valuation:
We trim our earnings by 4%/1.5% respectively with mild trim in sales growth and introduce FY24E forecasts. Our TP stood at Rmb46, pegged to a 24.7x FY23F PE, equivalent to its 5-year trading average (Previously 31.7x FY22 PE).
Where we differ:
We forecast earnings CAGR of 15% in FY21-24E.
Key Risks to Our View:
COVID-19 impacts, volatility in raw material prices, tougher competition, execution risks on M&As, and trade war.
