The 15% yoy organic sales growth in 9M17is mainly driven by volumegrowth. Price benefit from product mix upgrade is offset by lower ASPdue to increasing promotions. Sales growth of high-end products remainsstrong. Sales of UHT yoghurt "Ambrosial" increased more than 30% yoy,while high-end milk "Satine" and chilled yoghurt "Chang Qing" grew indouble digits. The high-end products account for 50% of sales currently.。    Sales outlook: Yili guided Rmb65bn sales and Rmb6.2bn profit beforetax at the beginning of the year. Management indicates that actualgrowth could be better than previous guidance. In the next few years,management expects industry growth to remain strong, given low percapita consumption and increasing demand from lower tier regions.However, management also acknowledged that high base in 2017shouldbring some pressure on sales growth in 2018.。    Industry competition didn't worsen year-to-date. Meanwhile,management feels that there is some easing down in promotions dueto increasing demand in September for National holidays and undersupply of raw milk in some regions, though there has been no significantimprovement in competition overall.。    Margin outlook:Raw milk price to enter rising cycle gradually from2018,which will bring pressure on gross margin. Yet, management expects thecompetition to ease down within the cost rising cycle, which should leadto a lower SG&A/sales ratio on fewer price promotions.。    To launch soy milk product in 4Q17. Management expects soy milk tobe a large market, yet it will take time to grow. It doesn't think dairyconsumption will be cannibalized by soy milk.。

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