Yili Group's Outlook Upgraded to Stable and Rating Affirmed at "A-" by S&P Global

• Yili's commitment to maintaining low leverage while it pursues growth supports the upgrade of its outlook to stable.
• Yili could achieve its 2025 growth target through organic growth alone.

HUHHOT, China, Feb. 18, 2022 /PRNewswire/ -- S&P Global Ratings announced it has revised its rating outlook for Inner Mongolia Yili Industrial Group Co., Ltd. ("Yili") to stable and affirmed the "A-" long-term issuer credit rating on Yili and the "A-" issue rating on the senior unsecured notes that the company guarantees.

S&P said that the stable outlook reflects its view that Yili will have the ability and discipline to fulfill its growth targets. S&P also noted that with its disciplined financial policy, robust organic growth, and stable free cash flow, Yili could maintain its minimal leverage position as it pursues growth.

Yili, currently the fifth-largest dairy producer in the world, has unveiled its new mid- to long-term strategic goals. S&P said that the company would need to grow revenue at above 10% annually to become one of the top three global dairy players by 2025, adding that Yili could achieve this through organic growth alone.

Data shows that in the first three quarters of 2021, Yili registered gross revenue of RMB 85.007 billion and a net profit of RMB 7.967 billion, representing a year-on-year increase of 15.23% and 31.82%, respectively.

Significantly, S&P predicted that the size of other potential external acquisitions beyond the strategic acquisition of Ausnutria will not have a material impact on Yili's leverage ratios. Moreover, the company's healthy EBITDA growth and solid operating cash flow should support its low leverage, according to S&P.

On the one hand, Yili's good operating cost controls could better offset the impact of higher raw material prices. Yili also has better pricing, a premium product mix and a higher-margin layout for its powdered-milk business. S&P forecasted the company's EBITDA margin to rise incrementally to 11.2-12.0% in 2021 and 2022, up from 11.1% in 2020.

On the other hand, Yili's advantage in liquidity has been further strengthened due to its strong operating cash flow, adequate cash reserves on its balance sheet and private placement. The company also enjoys strong capital market access as well as strong and longstanding relationships with banks, as indicated by its issuance of bonds with low coupon rates. S&P therefore estimated that Yili's free operating cash flow will remain at RMB 2.5 billion to RMB 4.0 billion in 2022 and that ample operating cash flow will aid rising capital expenditures in 2023.

At the end of 2021, Yili unveiled its New Vision for corporate value creation across key aspects, including high-quality development, exceptional business performance, and the pursuit of shareholder value, which together will further consolidate Yili's stable and healthy growth momentum.