Yili's Q1 a Strong Start, With Profit Growth Set to Be Resilient in 2022; CNY 46 FVE Unchanged

Yili reported full-year 2021 and first-quarter 2022 results, with 2021 revenue in line with our forecast but net profit slightly missing our estimates. First-quarter revenue and net profit increased 14% and 24% year on year, respectively. We slightly lowered our liquid milk gross margin assumption to account for higher operating costs with elevated commodity prices and the recent COVID-19 resurgence in China. But the expected stable trend of raw milk prices in 2022 should place Yili at a more advantaged position versus other consumer staples companies. The consolidation of Ausnutria from the second quarter onwards should also lift Yili’s gross and net margins. We project 2022 net income to grow 20% year on year and net margin to reach 8.0%. We retain our CNY 46 fair value estimate and reiterate our view that the shares are attractive at their current level.