The profits from the milk powder sector have plummeted, and liquid milk has not stabilized. Pan Gang, with an annual salary of 300 million, cashed out 1.6 billion. Inner Mongolia Yili Industrial Group (600887.SH) finds it easy to distribute dividends but difficult to achieve growth.

In March 2026, Yili Chairman Pan Gang made a significant reduction in his holdings of Inner Mongolia Yili Industrial Group (600887.SH), cashing out 1.64 billion yuan. Initially, investors were shocked, but soon they found some relief. This was merely a microcosm of Pan Gang's over 20 years at Yili, during which he directed a period of substantial growth and generous dividends. The only downside was that while Yili continued significant dividend distributions, the era of high growth had already come to an end. 1. The era of substantial growth and generous dividends directed by Pan Gang In 2005, Zheng Junhuai, known as the "godfather" of China's dairy industry, fell from grace due to misappropriation of public funds, exiting the Yili stage. Alongside Zheng, an ambitious MBO (management buyout) plan also crumbled. He was succeeded by Pan Gang. In 2005, when he assumed the roles of party secretary, chairman, and president of the group, Pan Gang began to take full control of Yili. At that time, Yili was facing external and internal challenges. Externally, the rapidly rising Mengniu began to challenge Yili's dominant position; internally, after Zheng Junhuai's departure, the struggle for control between investors and management remained unresolved. These significant historical burdens were left for Pan Gang to address, hampering Yili's progress. How to clarify control and invigorate internal management became a critical challenge that Pan Gang needed to solve urgently. Pan Gang did not keep the market waiting long. Beginning in 2006, Yili granted core executives a substantial percentage of company equity through three rounds of equity incentives. In 2014, Yili launched an even more ambitious employee shareholding plan spanning ten years. The initial group included 317 mid-to-senior level managers and key technical personnel, among which Pan Gang and seven others held stakes representing 30.76% of the total. Afterward, Pan Gang and the Yili core management also increased their stock holdings to astonishing levels through low-price allocations and secondary market acquisitions. For instance, through the 2013 and 2019 equity incentives, Pan Gang acquired 54.28 million shares at an incredibly low price of 6.49 yuan/share and 50.66 million shares at 15.46 yuan/share, respectively; in addition, he continually increased his shareholding ratio through numerous dividends and additional purchases. As of the end of the second quarter, Pan Gang held 225 million shares of Inner Mongolia Yili Industrial Group, making him the fourth-largest shareholder of Yili, even after his substantial sell-off in March. Another core Yili veteran, Zhao Chengxia, held 92.42 million shares, making her the sixth-largest shareholder. With adequate incentives for executives and a firm grip on the company, Pan Gangs Yili achieved continuous growth for 20 years. From 2005 to 2025, Yili's revenue grew nearly tenfold, while profits increased more than thirty times. This sustained growth over 20 years and generous equity incentives directly led to the arrival of the "great dividend" era, which was once regarded as a glorious chapter crafted by Pan Gang for Yili. Between 2016 and 2025, Inner Mongolia Yili Industrial Group cumulatively distributed close to 59 billion yuan in cash dividends. In just three years from 2023 to 2025, Yili alone distributed 24 billion yuan in dividends. Not only did the dividends lead the industry, but Yili also offered generous compensation to management. Among them, Chairman Pan Gang's average annual salary exceeded 20 million yuan over the past eight years. The wealth myth of Yilis executives reflects an unusual wealth creation pathway: not relying on family inheritance or initial startup capital but ensuring a combination of "high growth, high equity incentives, and high dividend mechanisms" to achieve valuations in the hundreds of billions. This is no exaggeration. According to the "Shareholder Return Plan for the Next Three Years (2025-2027)," for the years 2025-2027, the total annual cash dividend of Inner Mongolia Yili Industrial Group will account for no less than 75% of the net profit attributable to the parent company, and the cash dividend per share will not be less than 1.22 yuan (tax included) from the cash dividend per share in 2024. This means that Yili executives, holding substantial shares, would each year receive more cash than the number of shares they own. For Pan Gang, with his 225 million shares, this translates to nearly 300 million in dividends every year. Coupled with his salary, he ensures a minimum annual income of 300 million. Of course, this does not include one-time sell-offs and other unconventional methods. In March 2026, Yili Chairman Pan Gang significantly reduced his holding by 61.9903 million shares, cashing in 1.643 billion yuan. Although Pan Gang had previously stated that the sell-off was "to repay stock pledge loans," the capital market did not buy that reasoning. Investors initially panicked and were confused, then reacted with rage, leading to a sharp sell-off, and ten days later, Yili's market value evaporated by nearly 10 billion. The logic behind the investors' anger was that in a sensitive period of stagnation and low stock price fluctuations, the chairman cashing out was an extremely irresponsible act akin to pulling the rug out. After experiencing continuous growth, in 2024 Inner Mongolia Yili Industrial Group saw a rare revenue decline of 8.24%; in 2025, building on last year's low base, Yili achieved a mere 0.13% growth. In the first half of 2026, Yili's revenue grew by 4.13% year-on-year (with the same low base), while its net profit attributable to the parent company decreased by 20% year-on-year. In the capital market, Yili's share price had fallen from 44 yuan at the end of 2021 (its last peak) to around 26 yuan now. At such a crucial juncture, no matter how reasonable the rationale might be, it appeared inadequate as an explanation for Pan Gang's sell-off. 2. Liquid milk's struggles to stop the decline; the hefty price of acquiring AUSNUTRIA Pan Gang's significant sell-off was merely a "black swan" amidst the tumultuous capital market. Behind it, there were deeper reasons: investors' profound concerns over the long-term sluggish growth of Yili's core liquid milk business. In 2023, Inner Mongolia Yili Industrial Group's revenue grew by 2.49% year-on-year, marking the lowest growth rate in over 30 years (excluding 2016). From the fourth quarter of 2023 to the first quarter of 2024, Yili recorded revenue declines in two consecutive quarters. A major reason for Yili's declining revenue was the liquid milk (liquid dairy) products, which accounted for 70% of revenue, stagnating. From 2021 to 2023, Yili's liquid milk revenue remained around 85 billion, showing minimal growth. In 2024, Yili's liquid milk revenue fell by 12.32% year-on-year to 75 billion; in 2025, it further declined by 6.11% year-on-year to 70.422 billion. These simple figures reflect the confusion, weakness, and recession facing Yili's core business over consecutive quarters. While the industry downturn has its objective reasons, it still does not dispel the cloud hanging over investors. Fortunately, in the first half of 2026, signs of recovery appeared for Yili's liquid milk segment. According to financial reports, the liquid milk business achieved revenue of 36.590 billion yuan in the first half, a year-on-year increase of 1.3%. However, it must be acknowledged that the growth was mainly due to the first quarter, with only a modest 0.05% growth in the second quarter. It is almost certain that the recovery in Yili's liquid milk growth is not stable yet, and the key third and fourth quarters will be crucial in determining its future direction. While there was some warming in liquid milk sales, Yili's net profit, which could have been a strong indicator, unexpectedly suffered a setback. In the second quarter, Yili realized a net profit of 364 million, a drastic year-on-year decline of 84%. The impairments on AUSNUTRIA goodwill of 1.55 billion yuan and related inventory write-downs of 910 million yuan (total impairments of 2.46 billion), along with a tax payment of 600 million, jointly caused a significant drop in Yili's reported profit. Although the impairment of AUSNUTRIA goodwill is merely an accounting treatment, it eventually reflects deeper issues related to real business operations and strategic management. The principle of sowing and reaping holds true. To understand the billion-yuan acquisition in 2021, one must consider the industry situation Yili faced at that time. In 2020, Yili set a grand goal of becoming "the world's number one dairy company by 2030." To achieve this, Yili needed to accelerate its industrial layout and optimize its product structure. At this moment, the high-margin milk powder business became the best opportunity for Yili to enhance its strengths and grow. Precisely at this time, the increasingly saturated liquid milk market hindered Yili's progress, forcing it to accelerate its bet and gamble on the milk powder business. Considering that cultivating internally would be too slow, Yili opted for more effective external acquisitions. In October 2021, Yili's subsidiary, Jingan Holdings, acquired 34.33% of AUSNUTRIA Dairy, the top goat milk brand, for 6.245 billion HKD, becoming its largest shareholder. According to Yili's 2022 financial disclosures, Yili spent a total of 8.7 billion yuan to acquire nearly 60% of AUSNUTRIA. At that time, AUSNUTRIA's chairman, Yan Weibin, stated, "We value Yili's strength as a leading enterprise, and we admire Chairman Pan Gang's exceptional leadership charisma... AUSNUTRIA will deeply embrace Yili to co-create a new era." However, Yili's honeymoon with AUSNUTRIA didn't last long. In September 2023, Yan Weibin resigned from all positions at AUSNUTRIA. A former Yili employee, Ren Zhiqian, who joined AUSNUTRIA in July 2022, became the executive director and CEO of the company. It was also in 2023 that Yili's milk powder business growth rate began to slow. Yili's milk powder business revenue growth rate plummeted from 62% the previous year to just 5% in 2023. In 2024, this figure reached 7.53%, also tepid. By 2025, AUSNUTRIA was already holding back Yili's milk powder business, particularly in the second half of the year when AUSNUTRIA faced losses. Entering the first half of 2026, AUSNUTRIA's performance worsened further. Revenue declined by 18.6%, swinging from profit to a loss of 705 million, causing Yili's entire milk powder sector to plunge from double-digit growth to near stagnation. However, after experiencing the painful impairments, Yili's milk powder business has finally cleared its historical burdens and can charge forward unencumbered in the future. Unlike the still-unsteady liquid milk sector and the aggressive acquisition followed by setbacks in the milk powder business, Yili's ice cream business has been steadily growing. In 2023, Inner Mongolia Yili Industrial Group's ice cream business surpassed 10 billion for the first time, achieving a growth rate of 11.7%. However, in 2024, it dropped sharply by 18.4%, and it has not yet returned to the 2023 heights. Overall, from 2023 to the first half of 2026, the revenue proportion of Yili's ice cream business has shown fluctuating growth. Compared to the competition from Mengniu in liquid milk and Feihe in milk powder, Yili is currently dominant in the ice cream market. Products like Choco Lava, Binggongchang, and Zhenxi all exhibit strong long-tail effects. 3. High profits and high dividends: Yili urgently needs to solve growth issues The liquid milk sector is declining but not entirely stable, the milk powder business has seen significant impairments but shows clearing effects, and the ice cream business is experiencing ups and downs but may return to a peak this year... Yili's three main business lines each offer points of interest, yet all have shortcomings. The collective performance of these three businesses aligns closely with Yili's overall development trajectory: Yili has not returned to its former peak growth. Despite the sluggish growth, Yili's ability to generate profits is increasing daily, and it is becoming increasingly proficient at making money. In 2023, Yili's net profit attributable to the parent company grew by 10.58% year-on-year to 10.4 billion yuan, marking the first time Yili's net profit has surpassed the 10 billion yuan mark in its history. Although there was a significant decline in 2024, it rebounded in 2025 to 11.5 billion yuan. All of this reflects a shift in Yili's development focus in recent years: from prioritizing scale growth to emphasizing profit (margin) goals. In 2021, Yili's revenue exceeded 100 billion, and in its annual report, Yili first introduced the business philosophy of "high-quality development as the main line." Starting in 2022, Yili began to use high-quality development and steady progress as annual themes, emphasizing that it does not solely pursue scale but values growth quality, operational resilience, cash flow, and shareholder return. At the 2023 earnings announcement, Yili repeatedly reiterated its goal of achieving a net profit margin of "at least 9%" by 2025. At the earnings announcement on April 30, 2026, Yili's management particularly emphasized that during the "14th Five-Year Plan" strategic period, they aimed for a net profit margin of 9%-10% and confirmed successful completion of that target by 2025. The net profit margin is becoming an important measure of Yili's high-quality development, with Yili even placing the net profit margin goal at a strategic height. This also objectively corresponds with the earlier discussion of the "2.0 version" that Pan Gang has crafted, transitioning from a "high-growth, high-dividend era" to a "high-profit, high-dividend era." From a foundational perspective, Yili's "high dividends" are supported by its business operations. First, starting in 2023, the gross profit margins of Yili's three major businesses have shown an accelerating upward trend. Second, the only segment to see a contraction in recent years, the liquid milk business, has the lowest gross profit margin among the three business lines, while the milk powder and ice cream businesses, which have the highest gross margins, have seen continued strategic enhancement. The revenue contraction triggered by liquid milk is being perfectly offset by the profits generated by milk powder and ice cream. Ultimately, Yili has made a historical leap from "demanding dividends from high growth" to "demanding dividends from high profits." In the first half of 2026, Yili's core operating profit margin improved to 13%, setting a new historical high. Nevertheless, it must be noted that Yilis net profit fell by 84% in the second quarter, and by 20% in the first half of the year, which struck a severe blow to their credibility. The paper value reflects the real operational pressure facing Yilis milk powder sector, particularly the AUSNUTRIA segment. Despite the significant depreciation associated with AUSNUTRIA, Yilis milk powder business must still prove itself moving forward, as this remains the core source for lifting profit margins in the future. Through the earnings announcement for the 2026 quarter, Chairman Pan Gang signaled that "the toughest phase for the dairy industry has passed" and included "balancing revenue and profitability" within the strategic objectives. However, it is undeniable that Yili is facing multiple pressures: stagnation in its core business growth, lingering effects of past acquisitions, the chairman's large-scale sell-off, and the challenge of regaining confidence in the capital market. In the future, these remain critical challenges that Pan Gang must address. This article is reprinted from the WeChat public account "Wendao Business," GMTEight editor: Chen Yufeng.