YILI(600887) 交银国际证券·2024-11-07 05:49Investment Rating - The report maintains a Buy rating for Yili Industrial Group Co Ltd (600887 CH) with a target price of RMB 33.30, representing a potential upside of 15.2% from the current price of RMB 28.90 [1][2] Core Views - Yili's Q3 2024 gross margin improved to 35.0%, up 2.5 percentage points YoY and 1.2 percentage points QoQ, driven by lower raw milk prices and product mix optimization [1] - Net profit in Q3 2024 increased by 8.5% YoY to RMB 3.34 billion, with a net profit margin of 11.5%, up 1.6 percentage points YoY [1] - The liquid milk business saw double-digit declines in Q3 2024, but the decline in ambient milk improved sequentially, outperforming ambient yogurt and ambient milk beverages [1] - Yili's market share in ambient milk increased by nearly 1 percentage point in the first three quarters of 2024 [1] - The low-temperature milk business maintained growth, with low-temperature milk achieving double-digit growth and market share expansion [1] - The infant formula business achieved high single-digit growth in the first three quarters of 2024, with market share increasing by 2 percentage points to 13.2% [1] - Raw milk supply is expected to slow down, narrowing the supply-demand gap, with policy incentives and improved consumer sentiment likely to drive a slight recovery in dairy product demand [1] Financial Performance - Revenue for Q3 2024 was RMB 29.1 billion, down 6.7% YoY but with a narrower decline compared to Q2 2024 (down 16.5% YoY) [1] - Revenue for 2024E is projected at RMB 119.3 billion, down 5.5% YoY, with a recovery expected in 2025E to RMB 127.4 billion, up 6.8% YoY [3] - Net profit for 2024E is forecasted at RMB 12.2 billion, up 17.7% YoY, with EPS of RMB 1.92 [3] - Gross margin for 2024E is expected to be 34.1%, up from 32.8% in 2023, with further improvement to 34.5% in 2025E [6] - ROE for 2024E is projected at 21.4%, up from 20.1% in 2023 [6] Industry and Competitive Position - The optimization of upstream supply is expected to benefit leading companies like Yili, with raw material price advantages potentially squeezing out smaller competitors [1] - Long-term demand drivers include per capita milk consumption, penetration rates, and the implementation of student milk policies [1] - Yili's competitive position is strengthened by its market share gains in ambient milk and infant formula, as well as its focus on premium products like the Jin Dian Organic series [1] Valuation - The target price of RMB 33.30 is based on 18x 2025E P/E, a 0.5 standard deviation below the 3-year historical average P/E [1] - The current P/E for 2024E is 15.1x, with a P/B ratio of 3.03x [3] - Dividend yield for 2024E is projected at 4.7%, up from 4.1% in 2023 [3]