\u3000\u3 Jointo Energy Investment Co.Ltd.Hebei(000600) 887 Inner Mongolia Yili Industrial Group Co.Ltd(600887) )
Investment summary:
Yili’s leading innovation ability, control of upstream resources and strategic layout of all channels constitute its own moat. In terms of sub sectors, the liquid milk sector is the main source of income of the company, the milk powder and dairy products sector makes a positive contribution to the company’s revenue, while the proportion of health drinks is relatively small, which is expected to become an important growth engine of the company. Yili has become the leader of normal temperature milk and low temperature yogurt. In the future, the continuous introduction of new products and the deepening and sinking of channels will become the main strategy to improve the market share of the company:
In terms of high-end white milk, Yili launched the high-end normal temperature white milk classic in 2006. In 2020, the retail sales increased by 35.1% year-on-year, and the market share increased by 4.9pct to 50.6%, ranking first in the corresponding market segments.
In terms of normal temperature yogurt, Yili launched amuxi products in 2014. In 2020, amuxi’s sales exceeded 30 billion, a new high.
In terms of low-temperature yogurt, Yili ranked first in the industry with a market share of 31.1% in 2019. Its products are rich in SKUs, and there is still room for category expansion of high-end products.
We believe that Yili’s market share in the field of normal temperature milk and low-temperature yogurt will be further increased in the future. In the medium and low-end market, with the deepening of the company’s channels, it is expected to develop more consumer demand. In the medium and high-end market, the company still has room to tap subdivided demand and continuously innovate categories. Yili entered the pasteurized milk field late. Considering that regional dairy enterprises have certain first mover advantages, Yili is difficult to grow rapidly in the short term, and the pasteurized milk sector is expected to contribute to Yili in the medium and long term.
Pasteurized milk is dominated by regional dairy enterprises. In 2019, the Cr5 of pasteurized milk was 36.2%, of which Guangming city accounted for the highest, 12.1%. Overall, Yili’s operation is relatively stable and its layout in the field of low temperature is relatively late.
Considering the strong regional characteristics of pasteurized milk industry, it will take some time for consumers to cultivate and change their consumption habits, which is difficult to contribute to Yili’s performance in the short term. In the medium and long term, Yili has perfect channel construction, has more high-quality milk sources and strong marketing ability, and is expected to grow rapidly into a subdivision leader. Yili’s infant milk powder business is growing rapidly. Its high-level R & D ability, strict quality control system and strong acquisition ability will help it achieve the second market share in 2022.
Yili infant milk powder business grew rapidly. In 2020, Yili ranked sixth in the industry with a market share of 6.2%. However, Yili’s infant formula business grew rapidly, with a year-on-year growth rate of more than 30% in 2021q3, of which Jinling guanzhenhu grew by more than 40%, and has become the first infant formula brand in China.
The market share of Yili infant milk powder continued to increase. Yili milk powder business aims to achieve the second market share in the industry in 2022 and the first market share in the industry in 2025. We believe that Yili’s high-level R & D ability, strict quality control system and strong acquisition ability will help to achieve this goal.
Leading advantages help Yili cheese business grow rapidly. Yili established the cheese division in 2018. At present, it has butter, light cream, children’s cheese and other products. With the continuous improvement of cheese product line, the company innovated and launched adult cheese with fresh taste. We believe that the company’s strong brand power and channel construction can help the rapid and large-scale production of cheese products. Even during the epidemic period in 2020, the cheese Division has achieved a significant year-on-year increase in overall performance.
Investment suggestion: it is estimated that the company’s revenue in the 21st-23rd year will be 1100.8/124.14/137.98 billion yuan, with a year-on-year increase of 13.63% / 12.77% / 11.15%, the net profit attributable to the parent company will be 8.434, 9.988 and 11.405 billion yuan, with a year-on-year increase of 19.2% / 18.4% / 14.2%, EPS will be 1.32, 1.56 and 1.78 respectively, and the corresponding PE will be 29.99, 25.32 and 22.18 respectively. Considering that the company is the leading target of the dairy industry, the foundation of the liquid dairy sector is stable, and the milk powder and dairy products create the second growth curve. Taking into account the valuation center and fundamentals of the company in recent two years, the PE valuation of the company in 2022 is 32x, with a corresponding reasonable value of 49.92 yuan / share. It is covered for the first time and given a “buy” rating.
Risk tips: the sales of new products are less than expected, the price of raw milk rises, food safety and increased competition.
