JPMorgan maintains Overweight rating on Yili Industrial stock amid strong results

JPMorgan reiterated an Overweight rating and RMB35.00 price target on Yili Industrial (SHA:600887) following its H1 2025 results, which saw a 4.4% earnings decline but 3.5% sales growth, outperforming competitors. Key drivers included a 31.8% surge in recurrent earnings, double-digit growth in infant milk formula sales securing market leadership, and a 12% average decline in raw milk costs. JPMorgan maintains its 2025 forecasts for Yili, projecting 2.9% sales growth and 20.6% adjusted earnings growth, identifying the company as its top pick among China dairy firms.

Analysis

Yili Industrial (SHA:600887) demonstrated significant operational outperformance in its first-half 2025 results, justifying JPMorgan's reiterated Overweight rating. While headline earnings declined 4.4% year-over-year, this was overshadowed by a 3.5% increase in sales, which starkly contrasted with competitor Mengniu's 6.9% sales decrease. More importantly, Yili's recurrent earnings, which strip out prior-year asset disposal gains, surged 31.8%, showcasing robust underlying profitability and far outpacing Mengniu’s 12.2% growth. This strength was driven by two key factors: favorable cost dynamics, with average raw milk costs down 12% year-over-year, and substantial market share gains in the high-value infant milk formula segment. Yili's double-digit growth in this category, compared to Mengniu's 2.5% growth and Feihe's 9% decline, has propelled it to market leadership. The company's confidence is reflected in its maintained full-year 2025 guidance for 2.8% sales growth and an improved net margin of 9%, a target supported by JPMorgan's own forecast for 20.6% adjusted earnings growth.

Key Decisions for Investors

• Investors should view Yili's results as a sign of superior execution and market share consolidation within the Chinese dairy sector, particularly given its outperformance against key competitors.
• The 31.8% growth in recurrent earnings and the 12% decline in raw milk costs are key positive indicators, suggesting margin expansion potential that may not be fully captured in the headline earnings figure.
• Given the reiterated Overweight rating and strong earnings growth forecast from JPMorgan, investors may consider Yili a top-tier holding for exposure to Chinese consumer staples, while monitoring its progress toward the guided 9% full-year net margin.