20200831-招银国际-伊利股份-600887.SH-2Q20_strongly_beat__TP_lifted_to_RMB45.90_5页_873kb

Yili (600887 CH) Company Update Summary

Core Content

Yili, a major player in the Chinese dairy sector, reported strong performance in the second quarter of 2020 (2Q20), significantly exceeding expectations. The company's net profit (NP) increased by 72% year-over-year (YoY), driven by improved gross profit margin (GPM) and a decline in selling expenses ratio. This performance was in line with the adjusted NP growth target for FY20E, which is on track to meet the share award scheme requirements. As a result, the target price (TP) was raised to RMB45.90 from RMB33.10, reflecting a 13% upside from the current price of RMB40.59.

Main Points

Financial Performance Highlights

• 2Q20 NP: +72% YoY, strongly beating expectations.
• 1H20 NP: Fell by 1% YoY to RMB3,781mn, equivalent to 60% of FY20E NP estimate.
• Revenue Growth:
  • 2Q20: +22% YoY, led by liquid milk (+17‰) and milk powder (+86‰).
  • 1H20: +5% YoY to RMB47,344mn.
• GPM: Widened by 1.6ppt to 38.7% in 2Q20, due to reduced promotions and better product mix.
• Selling Expenses Ratio: Slight YoY decline, reflecting more efficient spending.

Market Share and Product Performance

• Ambient Liquid Milk: Market share increased by 3.2ppt to 38.8%.
• Chilled Liquid Milk: Market share increased by 0.3ppt to 15.3%.
• IMF (Infant Formula Milk): Market share decreased by 0.2ppt to 5.8%.
• Key Products:
  • Satine: +25% in 2Q20 (vs Milk Deluxe +30%+).
  • Pro-Kido: +40% in 2Q20.
  • Ambrosial: +10% in 2Q20, but fell 5% in 1H20 due to a shift in consumption from yogurt to milk.
  • Organic Liquid Milk, Chilled Fresh Milk, UHT Milk: Outperformed the market with growth of 12.6%, 12.3%, and 7.5%, respectively in 1H20.

Business Development

• Chilled Fresh Milk: Market size exceeds RMB10bn, with RMB300mn in sales in 1H20. Sector growth depends on consumer education and cold chain development.
• Cheese: B2C market size is around RMB3bn, while B2B could be 2-3x larger. Yili's sales in 1H20 exceeded RMB200mn, compared to RMB457mn for Mengniu (MN).

Key Financial Projections

FY	Revenue (RMB mn)	NP (RMB mn)	EPS (RMB)	P/E (x)
20E	97,286	7,107	1.17	34.8
21E	108,915	8,745	1.43	28.3
22E	119,932	10,124	1.66	24.4

• FY19-22E EPS CAGR: Improved from 10% to 13%.
• FY20-22E NP Growth: Raised by 7-13%.
• CMBIS' P/E Band: Based on the average of mid-point (28x) and peak (32x) 1-yr forward P/E range, following the inclusion of Yili in the MSCI Emerging Markets Index in 2017.

Outlook and Risks

2H20E Outlook

• Revenue Target: Yili aims to maintain its FY20E total revenue target of RMB97bn (+8% YoY).
• Cost Pressure: Expected increase in raw milk costs may limit promotion activities in the second half.
• EPS Growth: 1H20 adj. NP growth was 14.6% (vs benchmark), on track to meet the 10% growth target for FY20E.

Risks

• Raw Milk Cost Pressure: May impact profitability.
• Food Safety Issues: Could affect consumer trust and sales.
• Market Share Shifts: Especially in the IMF segment.

Analyst Recommendation

• Rating: Maintain BUY.
• Target Price: RMB45.90 (+13% upside).
• Catalysts: Better-than-expected revenue and margins.
• Risks: As above.

Shareholding and Performance

• Shareholding Structure: Huhhot Investment holds 8.88%.
• Share Performance:
  • 1-mth: +8.8% absolute, +4.1% relative.
  • 3-mth: +28.4% absolute, +8.8% relative.
  • 6-mth: +23.2% absolute, +10.0% relative.

Financial Ratios and Metrics

Ratio	FY18A	FY19A	FY20E	FY21E	FY22E
Gross Margin	37.8%	37.3%	37.2%	37.8%	38.1%
Operating Margin	9.5%	9.0%	8.8%	9.3%	9.6%
Net Margin	8.2%	7.7%	7.3%	8.0%	8.4%
Payout Ratio	66.1%	70.9%	70.0%	70.0%	70.0%
ROAE	24.3%	25.7%	26.1%	28.9%	29.7%
ROAA	13.3%	12.8%	10.7%	11.8%	13.1%

Summary

Yili's strong 2Q20 performance, driven by better margins and efficient spending, has led to an upward revision of its earnings and a higher target price. The company is expected to benefit from ongoing industry consolidation and growth in key segments like chilled fresh milk and cheese. Despite potential challenges such as rising raw milk costs and food safety concerns, the outlook remains positive, supporting the BUY rating. The company's financials show consistent growth in revenue and net profit, with improved profitability metrics.