YILI(600887)2024-11-21 07:10Summary of Yili Co. Conference Call Company Overview - Company: Yili Co. - Date: November 20, 2024 - Industry: Dairy Products Key Points Industry and Market Dynamics - The liquid milk industry experienced its first decline in production in 2023, but output remained flat compared to 2022, indicating a stabilization in demand post-pandemic [2][4] - Consumer confidence is recovering quickly post-pandemic, supported by national stimulus policies, which is expected to boost demand in the second half of the year [2][3] - Yili has proactively managed channel inventory, leading to a healthy inventory level across the industry, with slight growth in end-consumer demand [2][5] Company Performance - Yili's third-quarter results showed a stable industry demand, with upstream raw milk supply growth slowing as expected [3][4] - The company has successfully restored channel inventory to healthy levels after adjustments made in July, improving product freshness and dealer profitability [3][4] - Yili anticipates a sequential improvement in revenue in Q4, driven by a favorable performance in liquid milk and milk powder segments [3][6] Consumer Trends and Product Strategy - Gift-giving scenarios for dairy products are diversifying, but dairy remains a preferred choice; self-consumption is increasing, particularly in high-tier cities [2][7] - The company is focusing on upgrading its product structure, with classic brands outperforming basic versions and a push towards high-end milk powder and functional products [2][11] - The dairy industry is evolving towards health-oriented products, but consumer education remains a barrier; large enterprises like Yili are expected to benefit more from this trend [2][13] Future Outlook - Yili maintains an optimistic outlook for future growth, supported by healthy channel inventory and recovering consumer confidence [2][6] - The growth momentum in the dairy industry is expected to come primarily from product innovation rather than channel expansion [2][14] - There is significant potential for increased per capita milk consumption in lower-tier cities, which remains a key growth area [2][14] Competitive Landscape - The competitive environment is influenced by small enterprises entering the market with lower prices, but Yili is countering this by launching new sub-brands and maintaining price stability for its main brand [2][20] - The company has a strategy to manage excess raw milk supply by converting it into powder or other products during off-peak demand seasons [2][20] Challenges and Risks - The dairy industry faces challenges in consumer perception, particularly regarding the classification of yogurt and other products as functional foods [2][13] - The company is also navigating the complexities of credit losses associated with upstream loans, which have become more common due to tighter relationships with large-scale farms [2][23] Product Segmentation - Yili's cheese division is projected to grow significantly, with a balanced focus on both consumer (To C) and business (To B) markets [2][16] - The company is expanding its presence in the pasteurized milk segment, with a strong growth rate in its classic fresh milk products [2][17][18] Pricing and Promotions - The company has reduced promotional intensity in Q3, focusing on managing inventory levels while maintaining price stability [2][19] - Overall, the pricing landscape in the industry has seen a slight decline, but Yili's internal adjustments have mitigated larger impacts [2][19] Supply Chain and Sourcing - Yili sources approximately one-third of its raw milk from controlled companies, with the remainder from social farms, indicating a diversified supply chain [2][24] - The reliance on imported raw materials has decreased significantly, with a shift towards domestic sourcing expected to continue [2][25] This summary encapsulates the key insights from Yili Co.'s conference call, highlighting the company's strategic positioning, market dynamics, and future outlook within the dairy industry.