20220125-招银国际-伊利股份-600887.SH-Promotional_expense_on_Winter_Olympics_could_weigh_on_4Q_results_5页_943kb

CMB International Securities | Equity Research | Company Update Summary

Core Content

Yili Industrial (600887 CH) is a key player in the China Consumer Staples sector, with a focus on liquid milk, IMF (Industrial Milk Fat), low temp milk, and cheese. The report provides an analysis of the company's performance in 4Q21 and outlook for 2022E and beyond, highlighting its strategic initiatives and financial metrics.

Main Points

4Q21 Performance

• Top Line Growth: Sales in liquid milk improved compared to 3Q21. IMF continued to track strongly, with Yili's market share expanding 1.6pp YoY to 7.1% in November 2021, despite regional outbreaks.
• Low Temp Milk: Recorded steady top line growth, but has not yet broken even due to high cold chain logistic costs and limited scale.
• Promotional Expenses: Increased advertising campaigns, including those for the Winter Olympics, led to a higher opex ratio of 28.7%, contributing to a 1.5% reduction in 2021E net profits.
• Net Profit Estimate: Revised 4Q21E net profit estimate to RMB958mn, which is 2% below consensus.
• Margin Pressure: 4Q21 margins faced higher pressure due to high raw milk prices and increased selling expenses. Management expects a 0.5pp YoY improvement in full-year NPM.

2022E Outlook

• Revenue Growth: Targeted for double-digit revenue growth.
• Strategic Investment: Investment in Ausnutria is expected to drive growth in IMF and other categories, with potential synergies in supply chain, product extension, and channel expansion.
• Margin Expansion: Management aims to maintain steady margin expansion, targeting ~9-10% NPM by 2025E.
• Sector Consolidation: Anticipated further consolidation in the sector.

Financial Projections

FY	Revenue (RMB mn)	YoY Growth (%)	Net Income (RMB mn)	EPS (RMB)	YoY Growth (%)
2019A	90,223	13.4	6,934	1.1	11.6
2020A	96,886	7.4	7,078	1.2	2.0
2021E	110,813	14.4	8,902	1.5	25.8
2022E	125,929	13.6	10,648	1.6	11.7
2023E	140,856	11.9	12,743	2.0	19.7

Valuation

• Target Price (TP): RMB46.5 (from RMB50.0), based on an updated 28.5x end-22E P/E, which is 1 standard deviation above its 3-year average.
• Earnings Volatility: The report suggests a preference for CR Beer (291HK) and Mengniu (2319HK) due to potentially lower earnings volatility.

Key Ratios

Metric	FY19A	FY20A	FY21E	FY22E	FY23E
Gross Margin (%)	36.9	35.6	35.6	35.9	36.2
Operating Margin (%)	8.0	7.7	8.8	9.4	10.1
Pre-tax Margin (%)	9.1	8.4	9.5	10.0	10.7
Net Margin (%)	7.7	7.3	8.0	8.5	9.0
ROE (%)	24.9	22.0	27.3	29.1	32.0
Dividend Yield (%)	n.a	n.a	2.8	3.1	3.7
P/E (x)	n.a	n.a	27.0	24.1	20.2
P/B (x)	n.a	n.a	7.3	6.6	6.0
Net Debt to Equity (%)	net cash	1.3	7.6	5.8	2.5

Shareholding and Performance

• Market Cap: RMB252,165 mn
• Average 3 Months Turnover (RMB mn): 2,530
• 52-Week High/Low (RMB): 48.9 / 30.9
• Total Issued Shares (mn): 6,400
• Share Performance (1-month): -7.0%
• Share Performance (3-months): -1.2%
• Share Performance (6-months): 15.5%

Key Takeaways

• Cost Pressure: Expected to ease in 2022E as raw milk prices stabilize.
• Strategic Moves: Investment in Ausnutria to support growth in emerging categories.
• Investor Advisory: CMBIS recommends buying Yili Industrial but highlights the potential for lower volatility in other stocks within the China Consumer Staples sector.

Key Information

• Analyst: Joseph Wong
• Contact: (852) 3900 0838 | josephwong@cmbi.com.hk
• Ratings: BUY (Maintain)
• Up/Downside: +18.0%
• Current Price: RMB39.4
• Target Price: RMB46.5
• Risk Disclaimer: The report contains general information and is not tailored to individual investors. It is not an offer to buy or sell securities and should not be relied upon without consulting a financial advisor.

Conclusion

Yili Industrial is positioned for continued growth in key segments like IMF and low temp milk, despite short-term margin pressures from promotional expenses and high raw milk prices. The company's strategic investments and market positioning are seen as positive, but its performance is expected to be more volatile compared to other stocks in the sector. CMBIS maintains a BUY rating with a revised target price, reflecting the updated financial outlook and growth strategy.