In March 2026, Inner Mongolia Yili Industrial Group Co.,Ltd. (600887.SH) Chairman Pan Gang executed a significant share reduction, netting 1.64 billion yuan. While initial investor shock quickly gave way to a degree of resignation, this move merely underscores the narrative of Yili's era of high growth and generous dividends under Pan's two-decade stewardship. The lingering concern remains: Yili's substantial dividend payouts persist, but its era of rapid growth has decisively concluded.
The Pan Gang Era of Growth and Dividends
In 2005, Zheng Junhuai, often hailed as the "godfather" of China's dairy industry, fell from grace at Yili due to embezzlement charges, taking with him an ambitious management buyout plan. Pan Gang, who consolidated the roles of Party Secretary, Chairman, and President by 2005, stepped in to lead. At that time, Yili was besieged both externally, by a surging Mengniu challenging its dominance, and internally, by unresolved control struggles between capital and management following Zheng's departure. Pan's immediate challenge was navigating this legacy to unlock management's potential.
Starting in 2006, Yili initiated three rounds of equity incentives, granting core executives substantial company shares. By 2014, a more extensive 10-year employee shareholding plan was launched, initially covering 317 mid-to-senior managers and technical experts, with Pan and seven others holding 30.76% of the plan's total shares. Subsequently, Pan and other key executives increased their holdings through low-price grants and market purchases, amassing tens of millions of shares. Pan himself received 54.28 million shares at 6.49 yuan and 50.66 million shares at 15.46 yuan through incentive plans in 2013 and 2019, respectively. By the end of Q2 2026, despite the March reduction, Pan held 225 million shares, making him Yili's fourth-largest shareholder. Fellow veteran Zhao Chengxia held 92.42 million shares.
This robust executive incentivisation underpinned two decades of growth. Between 2005 and 2025, Yili's revenue expanded nearly tenfold, while profits surged over 30 times. This sustained growth and generous equity incentives directly fostered the "big dividend" era, often lauded as Pan's hallmark achievement. From 2016 to 2025, Yili distributed nearly 59 billion yuan in cash dividends, including 24 billion yuan in the 2023-2025 period alone. Executive compensation has also been notably generous, with Pan averaging over 20 million yuan annually in the past eight years. The wealth creation path for Yili executives has been unique: not reliant on family inheritance or venture capital, but on successfully combining high growth, high equity incentives, and high dividend distributions. According to the 2025-2027 shareholder return plan, Yili commits to distributing no less than 75% of its annual net profit attributable to the parent company, with a minimum cash dividend of 1.22 yuan per share (tax included). For Pan, holding 225 million shares, this translates to almost 300 million yuan in annual dividends alone, on top of his salary, ensuring a minimum yearly income of 300 million yuan.
In March 2026, Pan Gang's sale of 61.99 million shares for 1.643 billion yuan, ostensibly to repay stock pledge loans, spooked the market. Investor sentiment turned from shock to anger, contributing to a near 10 billion yuan evaporation in market value within ten days. The core grievance: a chairman cashing out during a period of stagnant growth and low share prices is seen as highly irresponsible. After years of growth, Yili's revenue unexpectedly declined by 8.24% in 2024, managed only a marginal 0.13% increase in 2025, and saw a 20% drop in net profit in H1 2026 despite a 4.13% revenue rise. The share price has fallen to around 26 yuan from a high of 44 yuan at the end of 2021, making any justification for the reduction hard for investors to accept.
Liquid Milk's Precarious Stabilisation and the Costly Ausnutria Acquisition
Pan's share sale acts as a stark "black swan," highlighting deeper investor anxiety about the long-term stagnation of Yili's core liquid milk business. Revenue growth slowed to 2.49% in 2023, the lowest in over three decades, and consecutive quarterly declines were recorded in late 2023 and early 2024. Liquid milk, which constitutes about 70% of revenue, has been the primary drag. After hovering around 85 billion yuan from 2021 to 2023, liquid milk revenue fell 12.32% to 75 billion yuan in 2024, and further declined 6.11% to 70.42 billion yuan in 2025. While H1 2026 saw a tentative 1.3% recovery to 36.59 billion yuan, this was largely driven by Q1, with Q2 growth essentially flat at 0.05%, indicating stabilisation is far from secure. The critical Q3 and Q4 periods will be decisive. Compounding the issue, Q2 2026 net profit plunged 84% to 364 million yuan, driven by a 1.55 billion yuan goodwill impairment for Ausnutria, a 910 million yuan inventory write-down, and a 600 million yuan tax payment.
The Ausnutria impairment reflects deep-seated strategic issues traceable to Yili's 2021 acquisition spree. Aiming to become the global dairy leader by 2030, Yili sought to bolster its high-margin milk powder business amid a saturated liquid milk market. In October 2021, subsidiary Jingang Holdings acquired a 34.33% stake in Ausnutria, the leading goat milk brand, for HK$6.245 billion. By 2022, Yili's total investment in Ausnutria had reached 8.7 billion yuan for nearly 60% ownership. Initially lauded as a synergistic partnership, the ties quickly frayed. Ausnutria's chairman Yan Weibin resigned in September 2023, replaced by former Yili employee Ren Zhijian. Yili's milk powder growth subsequently slowed from 62% in 2022 to 5% in 2023 and 7.53% in 2024. By 2025, Ausnutria was a drag, turning loss-making in H2 and deteriorating further in H1 2026 with an 18.6% revenue drop and a 705 million yuan loss, stalling overall milk powder segment growth. The impairment, while painful, is seen as clearing historical baggage for future progress.
In contrast, Yili's cold drinks business has been quietly growing. After breaking the 10 billion yuan revenue mark in 2023 with 11.7% growth, it fell 18.4% in 2024 but has shown resilience, with its revenue share fluctuating upward through H1 2026. Yili currently dominates the domestic cold drinks market, facing little competition compared to the challenges from Mengniu in liquid milk and Feihe in milk powder. Brands like Qiaolezi, Binggongchang, and Zhenxi boast strong long-tail effects.
Challenges Ahead: Sustaining High Profitability and Dividends While Restarting Growth
Yili's three main business segments each present a mixed picture: liquid milk is stabilising but not secure, milk powder is being cleansed of acquisition-related losses, and cold drinks are volatile but potentially poised to recover. Collectively, they reflect a company that has yet to return to its former growth trajectory. However, Yili's profitability has improved significantly. Net profit attributable to the parent exceeded 10 billion yuan for the first time in 2023, reaching 10.4 billion yuan, and grew further to 11.5 billion yuan in 2025. This shift reflects a strategic pivot from merely pursuing scale to prioritising profit margins. Starting in 2022, Yili's annual themes emphasised high-quality development and steady progress, downplaying pure scale growth in favour of growth quality, operational resilience, and shareholder returns. In April 2026, management confirmed achieving its 2025 net profit margin target of 9%, a key objective of its 14th Five-Year Plan. This pursuit of higher profit margins is logical: since 2023, gross margins across all three segments have accelerated, with the shrinking liquid milk business (the lowest margin) being offset by the higher-margin milk powder and cold drinks segments. This transition has allowed Yili to shift its dividend funding source from high growth to high profitability, with core operating margins hitting a record 13% in H1 2026.
Nevertheless, the stark 84% profit drop in Q2 and 20% decline in H1 2026 serve as a stark reminder of the underlying pressure from the Ausnutria-related milk powder operations. The future of this segment remains crucial for Yili's margin elevation strategy. While Pan Gang signals that "the hardest period for the dairy industry has passed" and has adopted a strategy to "balance revenue and profitability," Yili faces the complex task of restarting core business growth, fully digesting past acquisition after-effects, and restoring capital market confidence following the chairman's significant share sale. These remain formidable challenges for Pan Gang to address.
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