occurrences

The company's total revenue in 2023 was 126.18 billion yuan (+2.4%), net profit to mother was 10.43 billion yuan (+10.6%); 2023Q4 revenue was 28.77 billion yuan (-1.8%), net profit to mother was 1.05 billion yuan (-23.5%); 2024Q1 revenue was 32.58 billion yuan (-2.6%), and net profit to mother was 5.92 billion yuan (+63.8%).

Key points of investment

2023 Annual Report: Performance was in line with expectations, dividends slightly exceeded expectations, profitability increased as scheduled to total operating income of $126.18 billion (+2.4%), net profit to mother of 10.43 billion yuan (+10.6%), net profit of 10.03 billion (+16.8%), gross profit margin 32.6% (+0.3pct), sales expense ratio 17.9% (-0.7pct), net profit margin 8.2% (+0.6pct), profitability increased as scheduled.

2023 main business revenue growth rate split: sales volume/structural upgrade/unit price/others contributed +4.0%/+0.1%/-1.6%/+0.2%, respectively.

By category in 2023, liquid milk was 85.54 billion (+0.7%), milk powder and dairy products were 27.60 billion (+5.1%), and cold drinks were 10.69 billion (+11.7%).

The 2023 dividend was 7.64 billion, with a dividend rate of 73.3%, a slight increase from about 70% in the previous period, corresponding to a dividend rate of 4.2%.

2024Q1: Revenue fell slightly short of expectations. Coal mine asset disposal increased profit 2024Q1 total operating income of 32.58 billion yuan (-2.6%), net profit to mother of 5.92 billion yuan (+63.8%), net profit of 3.73 billion yuan (+8%), gross profit margin 35.8% (+2.0pct), and sales expense ratio 18.5% (+1.4pct).

2024Q1 coal mine asset disposal revenue increased profit by $2.56 billion (recorded in non-recurring profit and loss), after deducting 11.5% (+1.1%) of non-net interest rate.

By category, 2024Q1 is 20.06 billion for liquid milk (-6.8%), 7.43 billion for milk powder and dairy products (-0.2%), and 4.33 billion for cold drinks (+14.2%).

As of 2024Q1, the number of dealers was 18,431, a year-on-year decrease of 1,230, mainly due to Ausu channel adjustment+Yili Room Temperature business adjustments involving channel integration.

Detailed breakdown of product revenue: 24Q1 room temperature milk actively adjusts to the lightweight package, and the trend of 2024Q2 infant formula is improving (1) Room temperature milk: We expect a slight increase in revenue from room temperature milk in 2023, a slight decline in 2023Q4 revenue, and a decline in 2024Q1 revenue. Among them, the 2024Q1 decline is due to weak terminal sales and active reduction in shipments after high inventory, with the intention of reshaping the channel value chain, reducing channel pressure, and improving dealer profit levels; (2) Low temperature milk: We expect positive growth in revenue for low temperature milk in 2023 & 2023Q4. Slight increase in 2024Q1 revenue;

(3) Infant formula: We expect income from infant formula to decline in 2023, 2023Q4 revenue will resume positive growth, and 2024Q1 revenue will decline due to base figures but terminal sales are good. We expect the income trend of infant formula to improve from 2024Q2;

(4) Adult Pink: We expect the revenue of Adult Pink to grow by double digits in 2023 & 2023Q4 & 2024Q1;

(5) Cheese: We expect the TOC business to decline in Cheese's 2023 & 2023Q4&2024Q1 revenue, and stable to B-side business.

2024 outlook: Small single-digit revenue growth and buybacks show confidence. By 2024, the company plans to achieve total revenue of 130 billion dollars (+3.0%) and total profit of 14.7 billion dollars (+25.6%).

The company plans to use its own capital of 1 to 2 billion dollars to cancel all repurchased shares and reduce the registered capital. The cash buyback shows management confidence.

Profit forecasting and valuation

Focus on the positive margins of fundamentals under high dividends: the revenue trend is improving. Under pressure from the industry where demand is weak and there is an oversupply of raw milk, the company actively adjusted 24Q1 room temperature milk to be lightweight, and infant formula is expected to contribute to the increase starting in 24Q2.

The company's 2024-2026 revenue is expected to be 1306.3 billion yuan, 1356.3 billion yuan, and 139.91 billion yuan, respectively, and net profit to mother is 130.7 billion yuan, 124.2 billion yuan, and 13.41 billion yuan, respectively; maintaining the purchase rating.

Risk warning

Fluctuating raw material prices; food safety; increased industry competition risk