Group 1 - Morgan Stanley's trading department has noted an increase in attention and trading activity in the Chinese dairy industry, influenced by government policies on infant formula and the industry's strong domestic characteristics [1] - Despite the anticipated poor performance in 2024, Yili's (600887.SH) 2025 performance guidance is reassuring, with sales, reported earnings, and recurring earnings expected to grow by 3.4%, 34%, and 80% year-on-year respectively [1] - The new target price for Yili is set at 35 RMB, up from 30 RMB, with an expected price-to-earnings ratio of 18 times for 2026, reaffirming it as the preferred stock in the Chinese dairy sector [1] Group 2 - Yili anticipates a reversal of the surplus in raw milk supply in the second half of 2025 due to reduced dairy farm capacity, rising beef prices accelerating farm closures, and ongoing trade wars pushing up feed costs [2] - This situation is viewed positively for the entire industry, leading to upgraded ratings for Mengniu (02319) and Feihe (06186) [2]

Core Viewpoint - The company reported a revenue decline of 7.07% year-on-year in Q4 2024, with net profit affected by asset impairment losses, leading to a significant increase in the dividend payout ratio to 91.4% for the year. The company aims for a positive outlook in 2025, targeting total revenue of 119 billion yuan and a profit of 12.6 billion yuan, representing year-on-year growth of 2.8% and 24.4% respectively, with an adjusted profit growth expectation of 16% after excluding impairment losses and asset sales [1][2][6]. Financial Performance - In Q4 2024, the company’s revenue was 26.74 billion yuan, with a net profit loss of 2.42 billion yuan primarily due to a one-time asset impairment loss of nearly 4 billion yuan. The cash collection for Q4 was 29.244 billion yuan, showing better performance than revenue, with a net operating cash flow of 7.870 billion yuan, up 19.6% year-on-year [2][4]. - For Q1 2025, the company reported revenue of 33.02 billion yuan, a year-on-year increase of 1.35%, while net profit decreased by 17.71% to 4.87 billion yuan. The adjusted net profit, however, increased by 24.19% to 4.63 billion yuan, indicating better-than-expected performance [5][6]. Product Category Performance - The liquid milk segment saw a revenue decline of 12.32% in 2024, with contributions from volume, price, and structure being -7.1%, -3.8%, and -1.1% respectively. In contrast, the milk powder and dairy products segment grew by 7.53%, driven by an 8.2% increase in volume [3]. - The cold drink segment reported a revenue increase of 11.7%, despite a significant volume decline of 18.3%, indicating a price increase [3]. Cost and Margin Analysis - The company’s gross margin improved to 33.9% in 2024, up 1.3 percentage points year-on-year, benefiting from a decrease in raw milk costs, with material costs per ton down by 8.27%. The gross margin for Q4 was 31.0%, down 0.74 percentage points year-on-year [4]. - The net profit margin for 2024 was 7.3%, down 1.0 percentage points year-on-year, impacted by a one-time goodwill impairment charge of 3 billion yuan related to Aoyou [4]. Industry Outlook - The dairy industry is expected to see an improvement in supply and demand dynamics, with upstream supply-side adjustments and enhanced policy expectations on the demand side. The company is positioned to benefit from these trends, aiming for above-expectation growth following the cleanup of its financial statements [6].

Core Viewpoint - The dairy giant Yili (600887.SH) has ended its 30-year growth streak due to unprecedented industry pressures, with significant declines in revenue and profit expected in 2024 [1][2]. Financial Performance - Yili's 2024 revenue is projected to be 115.78 billion yuan, a year-on-year decline of 8.24%, while net profit is expected to drop to 8.45 billion yuan, down 18.9% [2]. - In Q4, Yili made a substantial impairment provision of 5.2 billion yuan, resulting in a quarterly loss of 2.42 billion yuan, further pressuring annual profits [3]. Impairment and Asset Valuation - A major component of the impairment was a goodwill write-down of 3.04 billion yuan related to the acquisition of Ausnutria (1717.HK), which has seen a significant decline in performance [4]. - Other impairment provisions included 1.23 billion yuan for inventory and 370 million yuan for fixed assets due to market demand changes and technological obsolescence [5]. Industry Challenges - The dairy industry has faced negative retail growth since 2022, with a 2.7% decline in overall sales in 2024, exacerbating supply-demand imbalances [9][10]. - Yili's liquid milk segment saw a revenue drop of 12.3% in 2024, with a decrease in both sales volume and price [11]. Market Strategy - To protect distributor profits, Yili began channel inventory clearance in Q2 2024, leading to a significant revenue drop of 16.5% in Q2, which narrowed to 6.7% in Q3 [12][13]. - By Q3, Yili completed channel clean-up, stabilizing sales during peak seasons [14]. Future Outlook - Yili anticipates a potential turnaround in 2025, with Q1 revenue showing a slight increase of 1.35% and net profit rising by 24.19% [17]. - The company remains cautious about demand recovery, projecting only a 2.8% increase in full-year revenue for 2025 [18]. Market Share and Growth Engines - Yili's liquid milk revenue has stagnated, with a slight increase to 85.54 billion yuan in 2023, but its market share in this segment is declining [21][22]. - Conversely, the infant formula segment is experiencing growth, with a 7.53% increase in revenue to 29.675 billion yuan in 2024, driven by rising birth rates [26][29]. Diversification Efforts - Yili is exploring diversification beyond dairy, including launching new tea and mineral water products, while also focusing on functional dairy products [40][43]. - The company is also investing in health-related sectors and has established a venture capital fund targeting high-tech innovations in the health industry [48].

Core Insights - In the context of slowing growth in the dairy industry, leading companies are seeking new growth avenues, with Yili focusing on expanding its water business [2] - Yili has appointed Liu Yong, former Vice President of Cui Lin Agricultural Group and Chairman of Evergrande Ice Spring Group, as the Sales General Manager for its water beverage division [2] - Liu Yong brings nearly 10 years of experience in the beverage industry, having previously achieved significant revenue growth at Evergrande Ice Spring [2][3] Company Strategy - Yili's water beverage strategy is not new, dating back to 1996, but has been revitalized with a clearer focus on leveraging its strengths rather than merely following market trends [3] - The company is introducing differentiated products, such as the "tea-water separation fresh-keeping cap" technology for its iced tea and baby water products linked to its milk powder brand [3] Market Challenges - The bottled water market is dominated by three major players—Nongfu Spring, C'estbon, and Master Kong—who hold nearly 60% of the market share, making it challenging for new brands to penetrate [3] - Consumer loyalty to water sources and brand recognition poses a significant hurdle for Yili, necessitating substantial investment in market education [3] Future Outlook - The success of Yili's water beverage business as a new pillar will depend on its ability to continuously launch differentiated products and create synergies in channels and branding [3] - The management has high expectations for this segment, indicating potential for innovation and increased competition in the industry [3]

Core Viewpoint - Yili Group reported a robust financial performance for 2024, with total revenue reaching 115.78 billion yuan and a net profit of 11.54 billion yuan, marking a 12.2% increase, while the first quarter of 2025 showed continued growth in revenue and net profit [2][4] Financial Performance - In 2024, Yili achieved total revenue of 1157.80 billion yuan, with a net profit of 115.39 billion yuan after excluding goodwill impairment, reflecting a growth of 12.2% [2] - For Q1 2025, the company reported total revenue of 330.18 billion yuan, a year-on-year increase of 1.35%, and a net profit of 46.29 billion yuan, up 24.19% [2] - The gross profit margin improved by 131% to 34.03% in 2024, with operating cash flow net amount increasing by 18.86% to 21.74 billion yuan [2] Business Segmentation - Yili's business matrix is structured into three tiers: liquid milk and cold drinks, milk powder and cheese, and health drinks and overseas markets [3] - The liquid milk segment generated revenue of 750.03 billion yuan, maintaining the highest market share in ambient white milk, although it faced a 19.61% decline in revenue year-on-year [3] - The milk powder and dairy products segment saw revenue of 296.75 billion yuan, a growth of 7.53%, driven by strong performance in high-end products [3] - The overseas business, while showing growth in cold drinks and infant formula, still represents less than 10% of total revenue [3] Strategic Focus - For 2025, Yili plans to achieve total revenue of 1190 billion yuan and a profit of 12.6 billion yuan, representing increases of 2.8% and 24.4% respectively compared to 2024 [4] - The strategic focus for 2025 will be on functional nutrition and deep processing of dairy products [4] Challenges Ahead - The company faces challenges such as declining newborn numbers affecting infant formula demand and the need to cater to the aging population's nutritional needs [5] - Cost pressures from excess raw milk supply and competition from brands like Feihe and Junlebao may dilute Yili's market share [5] - Geopolitical and tariff risks could hinder the progress of Yili's globalization efforts [5]

Investment Rating - The report maintains a "Strong Buy" rating for the company [2][6] Core Views - The company aims to achieve a total revenue of 119 billion yuan and a total profit of 12.6 billion yuan in 2025, representing year-on-year growth of 2.8% and 24.4% respectively, with an expected profit growth of 16% after excluding one-time asset impairment losses [6][7] - In Q1 2025, the company reported revenue of 33.02 billion yuan, a year-on-year increase of 1.35%, and a net profit attributable to shareholders of 4.87 billion yuan, a decrease of 17.71% year-on-year, while the non-recurring net profit increased by 24.19% [6][7] - The dairy product industry is expected to improve due to accelerated supply-side adjustments and enhanced demand-side policies, indicating a positive trend in supply and demand [6][7] Financial Performance Summary - In 2024, the company experienced a revenue decline of 8.24% to 115.78 billion yuan, with a net profit of 8.45 billion yuan, down 18.94% [5][7] - The company’s gross margin for 2024 was 33.9%, an increase of 1.3 percentage points year-on-year, benefiting from a decrease in raw milk costs [5][6] - The company’s cash dividend for 2024 was 7.726 billion yuan, with a payout ratio of 91.4%, significantly higher than previous years [5][6] Segment Performance - In 2024, liquid milk revenue decreased by 12.32% to 75 billion yuan, while infant formula and dairy products saw a revenue increase of 7.53% to 29.675 billion yuan [5][6] - The cold drink segment reported a revenue increase of 11.7% to 10.69 billion yuan, despite a decline in sales volume [5][6] Future Outlook - The company forecasts an EPS of 1.79 yuan for 2025, with a target valuation of 20 times earnings, leading to a market capitalization estimate of 227.8 billion yuan [6][7] - The report indicates that the company is well-positioned for potential growth following the cleanup of its balance sheet from one-time asset impairments [6][7]

Core Viewpoint - The company is cautiously optimistic about the dairy industry's supply-demand balance, expecting a phase of stabilization in Q3, while maintaining a focus on channel management and price control to navigate market challenges [1][2][4]. Group 1: Supply and Demand Dynamics - The current supply-demand imbalance in the dairy industry originated in the second half of 2021, driven by increased consumer demand and enhanced production capabilities, leading to a rapid rise in cow numbers and milk yield [2]. - The company anticipates that the willingness of upstream farms to exit the market will increase, contributing to a more balanced supply-demand situation by Q3 [2][4]. - Management believes that the recent decline in raw milk prices will lead to a more rational approach among industry partners regarding demand forecasts, reducing the volatility seen in the past [3][4]. Group 2: Financial Performance and Strategy - In Q1, the company reported a strong start with improved sales and healthy inventory levels, despite a cautious outlook on short-term demand recovery [4][5]. - The company aims to achieve a net profit margin of 9% by 2025, indicating a focus on improving profitability [4]. - The milk powder and dairy products segment generated revenue of 29.675 billion yuan, reflecting a year-on-year growth of 7.53%, with significant contributions from infant formula and adult nutrition products [5]. Group 3: Product Development and Market Expansion - The company is actively developing new high-end products, including specialized milk powders aimed at youth growth and sleep aid, in collaboration with strategic partners [7]. - The B2B segment is expected to grow significantly, driven by increasing consumer acceptance of dairy products in various food sectors [7][8]. - The company has established a solid foundation in international markets, particularly in Southeast Asia, where it has seen double-digit growth in ice cream sales [8].

Core Insights - In 2024, the company achieved total revenue of 115.78 billion yuan, with a net profit of 11.539 billion yuan, marking a year-on-year growth of 12.2% after excluding goodwill impairment [1] - For Q1 2025, the company reported total revenue of 33.018 billion yuan, a 1.35% increase year-on-year, and a net profit of 4.629 billion yuan, reflecting a 24.19% growth [1] - The company continues to lead the Asian dairy industry in scale and quality, with significant growth in its milk powder business [1] Business Segments - The liquid milk segment remains the core competitive advantage, generating revenue of 75.003 billion yuan in 2024, maintaining the largest market share in the industry [2] - The company’s cold drink business achieved revenue of 8.721 billion yuan in 2024, reinforcing its position as the national leader in the cold drink sector for 30 consecutive years [2] - The milk powder and dairy products segment reached a revenue of 29.675 billion yuan in 2024, a 7.53% increase, with the adult milk powder market share rising to 24% [3][6] Health and Innovation - The company is expanding into the health food sector, with other product revenues growing by 13.75% in 2024, particularly in the ready-to-drink tea market [4] - The adult milk powder market has seen a compound annual growth rate of 23.6% over the past three years, with the 50+ age group contributing 62% of sales [5] - The company has made significant advancements in research and development, with a 2.33% increase in R&D expenses in 2024, leading to breakthroughs in functional dairy products [9] Strategic Collaborations and Future Outlook - In 2025, the company partnered with Tongrentang to develop a series of functional products, marking a strategic move towards becoming a comprehensive health food enterprise [7] - The company is addressing structural issues in the cheese industry by enhancing its deep processing capabilities and expanding its product offerings [8] - The company’s focus on digital transformation and AI applications aims to improve operational efficiency and market responsiveness [10][11] Shareholder Value - The company plans to distribute a cash dividend of 1.22 yuan per share, totaling 7.726 billion yuan, with a payout ratio of 91.4% [12] - The company has a history of significant shareholder returns, with cumulative dividends reaching 50.8 billion yuan since its market debut [12] - The current valuation is at a ten-year low, with a consistent dividend rate above 70% over the past five years, indicating strong investment potential [12] Industry Position and Growth Potential - The company is well-positioned in the dairy industry, with substantial growth opportunities in both liquid milk and milk powder markets [13] - The improvement in the upstream supply-demand balance is expected to enhance profitability, even with stable terminal demand [13] - The company is poised to lead the high-quality development of the Chinese dairy industry, leveraging its robust performance and innovative capabilities [14]

Core Viewpoint - The domestic dairy industry is shifting its focus towards lower-tier markets and functional product transformation after experiencing a slowdown in growth during 2024, with signs of recovery emerging in early 2025 [1][6]. Industry Performance - The top three dairy companies, Yili, Mengniu, and Bright Dairy, reported annual revenues of 115.8 billion, 88.67 billion, and 24.28 billion respectively for 2024, reflecting a year-on-year decline of 8%-10% [4]. - The performance fluctuations were primarily concentrated in the second and third quarters of 2024, with revenue declines narrowing in the fourth quarter and showing significant improvement in the first quarter of 2025 [5]. Strategic Adjustments - Yili's management implemented a series of measures, including promotional activities and inventory reduction, which contributed to market recovery by the third quarter of 2024 and a healthy market state by the 2025 Spring Festival [5][6]. - In Q1 2025, Yili achieved total operating revenue of 33.02 billion, a year-on-year increase of 1.4%, and a net profit of 4.63 billion, up 24.2% [5]. Market Trends - The dairy consumption growth rate has been declining for two consecutive years, influenced by both upstream and downstream market fluctuations [6]. - The current market dynamics are creating new opportunities, particularly in lower-tier cities where consumer demand for dairy products is increasing due to rising education and income levels [7]. Functional Transformation - Major dairy companies are adjusting their strategies to pursue functional product transformation for new growth [8]. - Mengniu is adopting a dual-track strategy focusing on deep processing and exploring new markets in specialized nutrition and functional nutrition [9]. - Bright Dairy announced its commitment to functional transformation by launching new products targeting specific nutritional needs [10]. Consumer Behavior Changes - The shift in consumer demographics is leading to a mismatch between new rational and personalized demands and traditional supply models [7]. - The per capita consumption of functional dairy products in China is still relatively low compared to developed countries, indicating significant growth potential [10].

Core Insights - The company achieved a total revenue of 1157.80 billion yuan in 2024, maintaining its position as the leading dairy enterprise in Asia, with a net profit of 115.39 billion yuan after excluding goodwill impairment, representing a year-on-year growth of 12.2% [2][3] - In Q1 2025, the company reported a revenue of 330.18 billion yuan, a year-on-year increase of 1.35%, and a net profit of 46.29 billion yuan, reflecting a significant growth of 24.19% [2] - The company aims to maintain a positive trend in operating profit margins, targeting a profit margin of 9% for 2025 [2] Financial Performance - The overall gross profit margin for 2024 was 34.03%, an increase of 131 basis points [3] - The management expense ratio decreased by 23 basis points to 3.86% in 2024, while the sales expense ratio for Q1 2025 was 16.9%, down 152 basis points [3] - Operating cash flow for 2024 reached 217.40 billion yuan, up 18.86% year-on-year, attributed to increased prepayments from distributors due to inventory buildup for the Spring Festival [3] Shareholder Returns - The company plans to distribute dividends of 77.26 billion yuan for 2024, with a payout ratio of 91.4%, marking a historical high [4] - Cumulatively, the company has distributed 508 billion yuan in dividends since its listing in 1996, leading the dairy industry in China [5] - The company commits to maintaining a dividend payout ratio of no less than 70% and aims to increase shareholder returns [5] Business Segments - The milk powder and dairy products segment achieved revenue of 296.75 billion yuan in 2024, a year-on-year growth of 7.53% [10] - The liquid milk segment generated approximately 750 billion yuan in revenue, contributing about 65% to the total revenue [7] - The company’s market share in liquid milk continues to expand, with significant growth in high-end low-temperature milk products [8] Strategic Initiatives - The company is focusing on functional nutrition and deep processing of dairy products, collaborating with traditional Chinese medicine brand Tongrentang to develop new products [13] - A new national dairy technology innovation center is under construction, aimed at addressing structural issues in the cheese industry [13] - The company plans to outline a five-year strategic plan in the second half of the year, emphasizing the reshaping of the dairy industry value chain [15]