Yili to Embrace Tepid Demand for Dairy Products Amid Soft Consumer Sentiment

We reviewed our assumptions ahead of the release of wide-moat Yili’s second-quarter results, and lower our net profit forecast for 2024 by 2% primarily due to softer-than-expected ice cream segment performance. While we think the liquid milk business would be pressured by near-term weak demand, we have already factored this into our estimates. Our longer-term earnings projections remain largely unchanged, and we retain our fair value estimate at CNY 36 per share, which implies 18 times 2024 price/earnings, 13 times EV/EBITDA and 3.9% dividend yield. We think Yili is attractive for investors who are willing to look past the near-term demand headwinds, underpinned by its decent 2024 dividend yield of 5.9% based on the current share price. We expect a recovery in demand for premium dairy products when consumer confidence rebounds in 2025.