Description of the event
In 2023, Yili Co., Ltd. achieved total operating income of 126.179 billion yuan (+2.44%); net profit to mother of 10.429 billion yuan (+10.58% year over year), after deducting non-net profit of 10.026 billion yuan (+16.78% year over year). The company's total revenue for 2023Q4 was 28.775 billion yuan (-1.82% YoY); net profit to mother was 1,048 billion yuan (-23.47% YoY), after deducting non-net profit of 1,573 billion yuan (+56.49% YoY). The company's total revenue for 2024Q1 was 32,577 billion yuan (-2.58% YoY); net profit to mother was 5.923 billion yuan (+63.84% YoY), after deducting non-net profit of 3,728 billion yuan (+7.97% YoY).
Incident comments
The demand side is still under relative pressure, and the 2024Q1 cold drink category has achieved relatively rapid growth. By category, looking at revenue in 2023 and 2024Q1, liquid milk was $85.54 billion (YoY +0.72%), 2024Q1 (YoY -6.81%); milk powder and dairy products: 27.598 billion yuan (YoY +5.09%), 2024Q1 (YoY -0.20%); cold drink products: $10.688 billion (YoY +11.72%), 2024Q1 (+14.21%); other products, $634 million (YoY +60.70%), 2024Q1 (YoY +43.42%).
By region, revenue for 2023 and 2024Q1, North China was $33.94 billion (YoY +2.24%), 2024Q1 (YoY +1.63%); South China $31,539 billion (YoY +5.68%), 2024Q1 (-2.26% YoY); Central China 24.536 billion yuan (+8.08%), 2024Q1 (-7.26% YoY); East China 19.311 billion yuan (YoY -8.16%), 2024Q1 (YoY -5.86%); others $15.134 billion (YoY -5.86%); others $15.134 billion (YoY) (YoY -5.86%) +5.25%), 2024Q1 (-1.52% YoY). In the context of declining raw milk, demand recovery is slow. At the same time, the company actively adjusts the pace, relieves inventory pressure, and maintains a healthy price system. Subsequent growth is expected to improve quarterly.
The decline in raw milk costs drives improvements in gross profit margin and gross sales margin, and investment returns increase overall profits. The company's net profit margin for 2023 increased 0.61 pct to 8.26% year on year, gross margin was +0.29 pct year on year to 32.80% year on year, and the period expense ratio was -0.87 pct to 22.53% year on year. Detailed changes: sales expenses ratio (-0.71 pct year on year) and management expenses ratio (-0.25 pct year on year).
The company's 2024Q1 net profit margin increased 7.37 pct to 18.18% year on year, gross margin was +2.02pct year on year, and the period expense ratio was +1.04pct to 22.55% year on year. Detailed changes: sales expense ratio (+1.38 pct year over year) and management expense ratio (+0.27 pct year over year). In the context of declining costs, 2024Q1 maintained restraint in spending, and the gross sales margin increased 0.6 pct year over year, continuing the trend of improvement in 2023. In addition, the investment income obtained by the company's disposal of mining subsidiaries also significantly increased net profit in 2024Q1.
Demand for dairy products has had its ups and downs, declining costs have led to improved profitability, and shareholder returns have steadily increased. Against the backdrop of the continued decline in milk prices, reflecting the twists and turns of the recovery in demand for dairy products, the industry is still in a weak recovery stage in 2024. The company set a relatively steady growth target in 2024 (total revenue of 130 billion yuan, total profit of 14.7 billion yuan). As capital expenditure entered a healthy steady state channel, the 2023 dividend rate increased to 73.25%, a step further than the previous dividend rate. The company also disclosed a new repurchase plan (amount of 1 to 20 billion yuan, accounting for about 0.38-0.75% of total share capital) to enhance market confidence and improve shareholder returns. The company is expected to achieve net profit of 13.2.08/11.90 billion yuan in 2024/2025, corresponding to EPS of 2.07/1.87 yuan in 2024/2025, and 14/15 times the corresponding PE, respectively, maintaining a “buy” rating.
Risk warning
1. Risk of slow recovery in demand; 2. Industry competition further exacerbates risks; 3. Risk of changes in consumer consumption habits; 4. Risk that prices of some raw materials will continue to rise, etc.