Inner Mongolia Yili Industrial Group Co. Ltd.

The stable outlook reflects our expectation that Yili will expand at a high-single-digit percentage annually over the next 18-24 months. Growth will be driven by the expansion of its liquid milk segment, the introduction of new products, and increased demand for quality dairy products. Furthermore, we expect Yili to maintain an EBITDA margin of 9%-11%, low leverage of below 1.0x, and generate positive free cash flow. We could lower the ratings if Yili's debt-to-EBITDA ratio approaches 1.5x. This could happen if: The company's debt-funded acquisitions or shareholder-friendly activities are higher than we expect; or Its sales and profitability materially weaken, such as EBITDA margin declining below 8%, due to intensified competition or major product safety issues. We could also lower

...Biggest player in China with good growth prospects. Inner Mongolia Yili Industrial Group Co. Ltd. (Yili) is the largest dairy producer in China as well as Asia, and the fifth-largest dairy producer globally based on its Chinese renminbi (RMB) 90 billion revenue in 2019. According to data provider Euromonitor, it accounted for 24.6% of liquid milk product sales in China in 2019, followed by China Mengniu Dairy Co. Ltd.'s 19.8%. We expect Yili's sales to outpace China's GDP growth rates, driven by rising dairy consumption amid expanding disposable income and a focus on wellness after the pandemic. Furthermore, Yili's growth is well supported by its nationwide sales network, effective marketing strategy, and strong research and development (R&D) capabilities. We anticipate an enhanced products portfolio with more nutrition-rich and flavored products to be a long-term growth engine....

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