1、Asia Pacific Equity Research31 August 2025J P M O R G A NInner Mongolia Yili-ALiquid milk sales decline narrows from 3.1%(1Q25)to 0.8%(2Q25);IMF ranking up to#1;top pick within our China dairy coverageOverweight600887.SS,600887 CHPrice(29 Aug 25):Rmb28.57Price Target(Dec-26):Rmb35.00Head of Asia Con

2、sumer ResearchKevin Yin AC(852)2800-Yibo Wu(852)2800-J.P.Morgan Securities(Asia Pacific)Limited/J.P.Morgan Broking(Hong Kong)LimitedStyle ExposureYilis 1H25 reported earnings were down 4.4%yoy on sales up 3.5%yoy(outperforming Mengnius reported earnings/sales-16.4%/-6.9%).Stripping out mainly the as

3、set disposal gain in 1H24,recurrent earnings increased 31.8%yoy(a beat;outpacing Mengnius up 12.2%yoy).Raw milk cost declined 2.5%from Jan to Jun,and 1H25 average cost was down 12%yoy.This resulted in a 2.1%sales decline in liquid milk(vs Mengniu down 11%;accounting for 58%Yili group sales).With IMF

4、 sales up DD(vs Mengniu up 2.5%and Feihe down 9%),Yili is now ranked#1 in terms of IMF retail market share in China.Given the better-than-expected 1H25 results,Yili maintained its 2025 full-year target(announced at year-beginning)of sales up 2.8%(vs Mengniu down mid/high-single-digit)with a 9%net ma

5、rgin(up from 2024s adjusted net margin of 8.2%).We maintain our 2025 sales/adjusted earnings forecasts of+2.9%/+20.6%yoy,and our OW rating with a PT of Rmb35.Yili remains our top pick in our China dairy coverage.Whats good?1)Fresh milk sales were up 20%+in 1H25(vs Mengniu 20%+),milk powder&cheese up

6、 14.3%(vs Mengniu IMF/cheese up 2.5%/12%),and ice cream up 12.4%(vs Mengniu 15%).2)GP margin expanded 1.1ppt to 36%(vs Mengniu up 1.4ppt to 41.7%)on easing input costs.3)Selling exp/sales ratio was down 1.1ppt to 18.3%(vs Mengniu down 0.5ppt to 27.9%).4)OP margin expanded 2.4ppt to 12.6%(vs Mengniu