Morgan Stanley: Yili Industrial: Liquid milk growth expected to accelerate in the fourth quarter, with channels and new products in focus for 2027

Why is liquid milk growth expected to accelerate?

The company expects liquid milk growth to accelerate in the fourth quarter of 2026, partly because of a low base in the prior-year period. Growth in 2027 is expected to exceed that in 2026, driven by channel optimization and product innovation.
In the third quarter of 2026, retail sales growth for ambient liquid milk outpaced reported sales growth. Ambient yogurt sales had largely stabilized, dairy beverages maintained healthy growth, and the newly launched Satine Fresh product performed well.
Chilled liquid milk sales grew by a mid-to-high single-digit percentage year on year in the first three quarters of 2026. The company plans to continue improving its product mix, expanding into new channels and lower-tier cities, optimizing costs and strengthening its brands.

The company maintains its full-year 2026 guidance: mid-single-digit year-on-year total revenue growth and an improvement in the core operating margin, supported by an optimized product mix and greater cost efficiency.
Excluding the impact of lower external sales of bulk milk powder, milk powder sales growth was close to double digits. Jinlingguan grew by a mid-to-high single-digit percentage and gained market share in the first three quarters of 2026; Ausnutria's sales improved following channel adjustments, and management expects it to achieve positive growth in the second half.
Cheese sales to consumers grew steadily, while the business serving corporate customers achieved double-digit growth, including growth of more than 20% in cream and butter sales. The company expects adult milk powder and cheese to maintain double-digit growth.
Ice cream sales rose 7.3% year on year in the first three quarters of 2026, and the company expects a similar growth rate for the full year.

The company believes industry demand is gradually stabilizing and expects the competitive environment to support continued market share gains. Management also expects raw milk prices to rise moderately in 2027, making competition more rational and benefiting large dairy companies with secure milk supplies.
Morgan Stanley notes that if the raw milk oversupply lasts longer than expected, companies may continue to spend on promotions. Conversely, after the oversupply eases, marketing and promotional spending should become more rational, supporting margin improvement.
Morgan Stanley forecasts the company's revenue at 118.839 billion yuan in 2026 and 124.16 billion yuan in 2027, respectively, and maintains its Overweight rating and 33 yuan price target.