Introduction: Yili turnover is the king, and the farmer makes a profit. High-quality companies tend to have higher ROE levels, that is, higher pricing power, lower comprehensive costs, or higher turnover efficiency, which mainly depends on the brand potential and supply chain management capabilities, in addition to the differences in business models between categories. Throughout the food and beverage industry leaders, Yili and Farmer ROE maintain about 25% and 35% respectively, both significantly leading the industry, while both popular beverage leaders, Yili is better than turnover efficiency, and farmers are better than profitability. In this report, we focus on the sources of the differences between Yili and farmers' paths, and explore their development prospects and investment value.

Growth ability: farmer ~ Yili, the basic set is concentrated and upgraded, the layout of the prosperous track, to support the continued growth of the giant. Yili basic plate normal temperature milk share continues to increase, high-end steady progress, to achieve stable growth in the stock era, while the company's strategy to develop milk powder and other whole milk plate, to explore healthy drinks. The share of farmers' basic plate packaging water continues to increase, seizing the opportunity of subdivision / family under the trend of quality upgrading, driving the company to maintain high growth, and the company's strategic layout of sugar-free tea, NFC juice and other prosperous races to seize the first opportunity of the category. Therefore, the compound growth rate of Yili and farmers' income has reached about 15% in the past three years, and if the strategic layout is effective, the room for growth will continue to open.

Profitability: Yili farmer (5.5%), in the past, Yili expanded from basic nutrients such as white milk to leisure products such as yogurt at room temperature, which required higher marketing investment to maintain the product life cycle. At the same time, Yili marketing put it high, which further pushed up the marketing expense rate, while the farmer packaging water business belongs to the basic category, the product life cycle is longer, the frequency of innovation is lower, and the marketing launch is naturally lower. And the fine marketing of the beverage business makes it have a higher cost-effectiveness ratio, so the rate of farmers' advertising marketing expenses is obviously lower than that of Yili. While the transportation cost rate Yili (5.4%)

Turnover efficiency: Yili > farmers, the assets are light and heavy to dominate the turnover, and the channels are both deep and wide. From the perspective of supply chain layout, upstream dairy farming capital investment is large and cyclical. Yili not only ensures a stable supply of milk, but also effectively takes into account the lighter assets and faster turnover of listed companies by building an external animal husbandry platform and embedded cooperation model. The industrial chain of packaged water and beverages is relatively short, and the layout of the whole industrial chain of farmers is conducive to improving the speed of response to the market, and factors such as professional business research, flexible allocation of own production capacity and efficient feedback of retail information work together to lay an iterative foundation for innovation, but the heavy assets affect the turnover efficiency to a certain extent. Therefore, the turnover rate of fixed assets and total assets of Yili is significantly higher than that of farmers. From the perspective of channel efficiency, according to the survey, Yili direct control terminal and farmers' deep co-marketing all achieve efficient operation, and under the basic nutrition positioning of dairy products, Yili sinks deeper, and under the convenient positioning of packaging water, farmers cover more widely.

Cultural mechanism: Yili anchoring strategy creates strong execution, and farmers' forward-looking layout innovation ability is better. Yili equity dispersion, 15 years later through a series of incentives to achieve a high degree of binding between the interests of management and employees, and continue to set clear strategic goals, such as the top five hundreds of billions, the top three in the world, and strong executive ability to lead their peers. In contrast, the farmer ownership structure is concentrated, the founder holds a high proportion of shares, the company culture highlights innovation, and constantly build differentiated competitiveness, such as positioning natural water in packaging water and continuous forward-looking layout of new categories of beverages.

Investment advice: now to reiterate the strong recommendation of Yili, raise the target price range to 58-67 yuan, farmers trade time for space. 1) Yili: the pattern of the dairy industry is not clear in the past few years. Yili has increased its investment to grab a share, and the main growth engine has a high investment in room temperature yoghurt, and the strategic layout of the beverage business has also caused a loss, making the net interest rate fall back from a high of nearly 10% to less than 8%. The current pattern is obviously clear, the profit demand of competitive products has been clearly reflected, and the growth engine of Yili has been switched from yoghurt to white milk, the strategic focus is on Maori milk powder business, and the beverage is expected to seek coordination with dairy products, which is expected to reduce losses. The factors that suppress profits in the past few years are expected to be significantly improved, and it is expected that the medium-term net interest rate has the potential to return to about 10%. During the year, the recent epidemic situation has been repeated, but nationalized dairy enterprises have sufficient room for regulation across regions and categories, and the impact of the epidemic on the demand for basic categories of white milk is expected to be limited. On the other hand, Yili reported a low base and high elasticity in the first quarter, the rise in milk prices catalyzed the price increase at the industry-wide level, and the growth accelerated after the improvement of milk powder business, which is not only expected to become a continuous catalyst during the year, but also the basis for the increase of net interest rate. therefore, we raised the EPS of Yili 20-22 to 1.19mob 1.43mob 1.68 yuan (the previous value was 1.17Mab 1.36max 1.59 yuan), gave 35-40 times PE for 22 years, and raised the target price of Yili to 58-67 yuan. Reiterate the "push" rating. 2) Farmer: the company is a beverage giant that continues to iterate, with both growth and scarcity. We maintain a 20-22 EPS forecast of 0.44max 0.56x0.68 yuan, and the current price corresponding to PE is 111-88-73 times. Considering the high short-term valuation, we do not give the target price and rating for the time. It is recommended to trade time for space.

Risk tips: repeated impact of the epidemic on demand, new product expansion is not as expected, raw material prices fluctuate sharply, industry competition intensifies, liquidity tightening affects plate valuation, and so on.