Group 1 - The company has issued a profit warning, expecting a net loss between 800 million to 1 billion RMB for the six months ending June 30, 2025, compared to a net loss of approximately 207 million RMB for the same period in 2024 [1] - The domestic raw milk market is currently oversupplied, leading to a significant decrease in market prices compared to the same period in 2024, which has negatively impacted the company's raw milk selling prices [1] - Despite the decline in raw milk prices, the company has implemented commodity procurement strategies and cost control measures, resulting in a reduction of sales costs by over 0.22 RMB per kilogram compared to 2024, with an expected increase in raw milk sales volume by approximately 10% [1] Group 2 - The company anticipates a substantial increase in losses compared to 2024 due to the active culling of low-yield cows to improve herd structure, which is expected to enhance key operational metrics [2] - By June 30, 2025, the total number of dairy cows is expected to slightly decrease compared to the end of 2024, but the proportion of productive cows is projected to rise to 53%, with average annual production per cow expected to exceed 13 tons [2] - The anticipated loss from the fair value revaluation of dairy cows, influenced by the increased number of culled cows and declining raw milk prices, is expected to range between 1.65 billion to 1.85 billion RMB, an increase of 500 million to 700 million RMB compared to 2024 [2] - The fair value revaluation loss is a non-cash item and will not have a significant adverse impact on the company's cash flow and ongoing operations [2] - The company is optimistic that with the recovery of dairy consumption demand, the raw milk market will stabilize, leading to a potential rebound in prices and improved profitability for sustainable growth [2]

Core Viewpoint - The article highlights the modern and sustainable practices of the Guoxiangyuan Ranch under Modern Dairy, showcasing its advanced technology and commitment to green development, which ensures high-quality milk production. Group 1: Modern Technology and Management - The ranch features high-standard cow barns equipped with advanced smart feeding TMR systems, self-sensing fans, precise spraying devices, and fully automated temperature-controlled water troughs [3] - A central control hall enables real-time monitoring of the entire process including procurement, feeding, milking, diagnosis, and management, ensuring the health and production performance of each cow [3][5] - This digital management approach enhances the production performance of dairy cows and provides a stable and reliable source of high-quality milk for Mengniu [5] Group 2: Sustainable Development Practices - The ranch promotes a circular farming model, utilizing solar energy resources and establishing a photovoltaic power station to reduce operational costs and dependence on traditional energy sources [5] - It extends its industrial chain by creating a peony viewing garden and integrating dairy science education and a dairy culture museum, offering consumers a space for leisure, learning, and experience [5] - Consumers can enjoy the beauty of the peony fields while gaining insights into dairy culture and the milk production process, highlighting the charm of the modern dairy industry [5] Group 3: Quality Assurance - Modern Dairy's Guoxiangyuan Ranch, through its advanced equipment, strict management, and green development philosophy, continuously provides high-quality milk to Mengniu [7] - Each drop of milk originates from healthy cows, ensuring pure quality and rich nutrition [7] - This exceptional quality not only meets Mengniu's demand for high-quality milk sources but also offers consumers healthy and delicious dairy products [7]

Investment Rating - The investment rating for the company is "Buy" with a target price of 1.14 HKD [6][7]. Core Views - The company is expected to report a net loss of 800-1,000 million RMB for the first half of 2025, compared to a net loss of 210 million RMB in the same period last year. The apparent profit loss is primarily due to impairment and other non-cash items, while actual operations remain stable [1][2]. - The company is actively improving its herd structure and controlling operational costs, with a slight expected decrease in the total number of dairy cows by the end of the first half of 2025, while raw milk sales volume is projected to increase by approximately 10% year-on-year [1][2]. - The company anticipates a reduction in feed costs and other cash costs in the second half of 2025, which may alleviate impairment pressures and allow for profit recovery [1][2]. Summary by Sections Financial Performance - The company expects to report a cash EBITDA for the first half of 2025 that is roughly comparable to the previous year, despite the apparent profit loss due to non-cash impairment losses estimated at 1,650-1,850 million RMB, an increase of 500-700 million RMB year-on-year [2][4]. - Revenue projections for 2025-2027 indicate a slight recovery, with expected net profits of -1,313 million RMB in 2025, 658 million RMB in 2026, and 1,117 million RMB in 2027, reflecting a significant turnaround [4][5]. Market Dynamics - The current dairy price adjustments are driven by supply-demand mismatches, with the company indicating a clear direction towards capacity reduction in response to prolonged low milk prices [3]. - The company is expected to see a decrease in its breeding stock in 2025, reflecting the industry's response to market conditions, with a notable increase in the proportion of productive cows [3]. Valuation Metrics - The target price of 1.14 HKD corresponds to a 13x PE ratio for 2026, down from a previous target of 1.35 HKD, indicating a cautious outlook due to ongoing impairment losses [4][6]. - The company's estimated EPS for 2025 is -0.17 RMB, with projections of recovery to 0.08 RMB in 2026 and 0.14 RMB in 2027, suggesting a potential for profit growth in the coming years [5][12].

Summary of Modern Dairy's Conference Call Company Overview - **Company**: Modern Dairy - **Industry**: Dairy Industry Key Points and Arguments Financial Performance - Modern Dairy expects EBITDA for the first half of 2025 to remain roughly flat compared to the same period last year, despite a projected net loss of 800 to 1,000 million yuan due to falling milk prices and increased costs associated with cow sales [2][3][4] - The company anticipates a total biological asset valuation loss of approximately 1.6 billion yuan for the year, attributed to depreciation of breeding cows, elimination losses, and herd impairment losses [4][15] Market Conditions - The dairy market is facing challenges in the first half of 2025, but Modern Dairy is optimistic about a turnaround in the second half due to industry consolidation and recovering consumer demand [4][10] - The number of dairy cows in the industry has decreased, with a significant drop in smaller farms, leading to a more stable supply-demand balance expected in the third quarter [11][12] Strategic Initiatives - Modern Dairy is implementing a cost leadership strategy by optimizing commodity procurement, precise feeding, and energy-saving measures to reduce feed costs [2][5] - The company plans to increase the proportion of specialty milk products, targeting 10% of total production by 2027, focusing on organic and A2 milk [2][7] Digital Transformation - The company is promoting a cloud-based cattle management model to enhance digital and precise management of farms, aiming to improve overall operational efficiency [8] Breeding and Production - Modern Dairy has made significant progress in breeding, with plans to achieve complete self-sufficiency in frozen semen by 2027 [9] - The company has seen a 10% increase in production in the first half of 2025, with expectations for mid-to-high single-digit growth for the full year [30] Cost Management - The average feed cost achieved in the first half of 2025 was 1.8 yuan per kilogram, with a target to reduce it below 1.78 yuan for the full year [4][19] - The company is facing pressure from rising corn feed prices, which have increased from 2,000 yuan to approximately 250-300 yuan [19] Customer and Market Dynamics - Demand remains relatively weak, but the company has successfully expanded its customer base, including partnerships with food processing companies [21] - The company is exploring further collaboration with partners like Miaokelan Duo for fresh cheese production [22] Cash Flow and Financial Health - Operating cash flow for the first half of 2025 is expected to be similar to last year, around 1.5 billion yuan, with efforts to maintain free cash flow [23][27] - The company plans to maintain a dividend payout of around 20% of profits, despite facing non-cash losses [24] Industry Challenges - The ongoing decline in milk prices is causing significant cash flow issues for many farms, with expectations of increased financial strain in the third quarter [25][26] - The company is closely monitoring market dynamics to adjust its operational strategies accordingly [19][26] Future Outlook - The second half of 2025 is expected to show positive signals, including easing trade tensions and supportive domestic policies, which may lead to a recovery in raw milk prices [6][10] - Modern Dairy aims to enhance its product structure and maintain a focus on high-quality differentiated raw milk production [6][10] Additional Important Insights - The company is actively working on deep processing initiatives, including partnerships for producing various dairy products [18][29] - The overall industry is expected to see a decline in supply due to the exit of smaller farms, which may lead to a more balanced market in the future [11][12][30]

Core Viewpoint - Modern Dairy (01117.HK) anticipates a net loss between RMB 800 million and RMB 1 billion for the six months ending June 30, 2025, compared to a net loss of approximately RMB 207 million for the same period in 2024 [1] Group 1: Financial Performance - The company expects cash EBITDA for the current period to be roughly in line with the RMB 1.515 billion recorded in the same period of 2024 [1] - The domestic raw milk market is experiencing a phase of oversupply, leading to a significant decline in market prices compared to the same period in 2024 [1] - The sales volume of raw milk is projected to increase by approximately 10% compared to the same period in 2024, which helps mitigate the impact of falling prices [1] Group 2: Operational Adjustments - The company is actively eliminating low-yielding cows to improve herd structure, which is expected to enhance key operational metrics [1] - The total number of dairy cows is expected to slightly decrease by June 30, 2025, but the proportion of mature cows is projected to rise to 53%, with average annual yield per mature cow expected to exceed 13 tons [1] Group 3: Valuation and Future Outlook - The fair value reassessment of dairy cows is expected to result in losses between RMB 1.65 billion and RMB 1.85 billion, an increase of RMB 500 million to RMB 700 million compared to the same period in 2024 [1] - The fair value loss is a non-cash item and will not adversely affect the company's cash flow, working capital, or ongoing operations [2] - The company believes that as dairy consumption demand recovers, the raw milk market will stabilize, leading to a rebound in prices and significant improvements in profitability [2]

Investment Rating - The report rates the food and beverage industry as "Overweight" [1] Core Insights - The dairy price is expected to stabilize in the second half of 2025 after a prolonged adjustment cycle lasting over three years, with over 80% of the industry facing losses [6][60] - The report highlights the cyclical nature of raw milk prices influenced by production capacity, demand, and imports, with significant historical fluctuations noted [6][19] - The report emphasizes the correlation between raw milk prices and the stock prices of upstream dairy companies, suggesting that stock prices may react ahead of milk prices during cyclical changes [6][35] Summary by Sections 1. Raw Milk Price Cycle - The raw milk price is influenced by multiple factors including production capacity, demand, and imports, creating a cyclical pattern [6][19] - The dairy industry is characterized by a long breeding cycle for dairy cows, leading to delayed responses in production capacity adjustments [18][19] - Historical data shows three downward cycles and two upward cycles in raw milk prices since 2008, with significant events impacting demand and prices [19][26] 2. 2025 Outlook - The industry is currently facing severe losses, with a continued trend of dairy cow capacity reduction expected [60][62] - Policy support is anticipated to improve dairy product demand, contributing to a gradual stabilization of milk prices in the latter half of 2025 [60][64] - The report forecasts that as the supply-demand balance improves, raw milk prices may stabilize, benefiting upstream dairy companies [60][62] 3. Correlation Between Milk Prices and Dairy Company Stocks - The report notes a high correlation between raw milk prices and the stock prices of upstream dairy companies, indicating that stock prices may respond more quickly to changes in market conditions [6][35] - The performance of downstream dairy companies is also influenced by their product structure and market expectations, which can affect their stock prices during different price cycles [6][35] 4. Investment Recommendations - The report suggests focusing on leading dairy companies such as Modern Dairy and Yurun Dairy, as well as major dairy enterprises like Yili and New Dairy, which are expected to benefit from the stabilization of milk prices [6][60]

Group 1 - The core viewpoint is that the dairy price has stabilized at the bottom, with an inflection point expected soon, as indicated by the recent data from the Ministry of Agriculture and Rural Affairs showing the raw milk price at 3.07 CNY/kg, which has been fluctuating slightly for about 11 weeks [1] - Modern Dairy's data supports this, with a projected raw milk price of 3.61 CNY/kg in 2024, reflecting a year-on-year decrease of 10.4%, but the decline is narrowing, with a forecasted price of approximately 3.56 CNY/kg in the second half of 2024, indicating a low single-digit decline [1] - The industry is showing signs of a cyclical bottom, with a continuous reduction in the cattle supply, as evidenced by the monthly decrease of about 40,000 heads, leading to an expected cattle population of 5.8 to 5.9 million by the end of the year [1] Group 2 - Modern Dairy has demonstrated significant cost control effectiveness, with the cost of milk per kilogram dropping to 2.53 CNY, a year-on-year decrease of 13.4%, particularly in feed costs which fell by 16.7% to 1.95 CNY/kg [2] - The company is expected to see further reductions in feed costs, with a projected decrease of about 6.9% to 1.88 CNY/kg in the second half of 2024, while other costs remain stable at 0.58 CNY/kg [2] - This comprehensive cost optimization has resulted in an increase in the gross profit margin for raw milk business to 31.2%, up 2.8 percentage points year-on-year, showcasing the management's ability to control costs and maintain operational resilience [2] Group 3 - The industry is experiencing a significant Matthew effect, with the top 20 dairy companies increasing their milk production by 14.9% despite a 2.8% decline in national milk production in 2024 [3] - Modern Dairy's market share is increasing, with raw milk sales reaching 2.893 million tons in 2024, a year-on-year growth of 13.6%, and an expansion in the breeding scale to 491,000 heads, up 9% [3] - The company is expected to enter a dual growth cycle of volume and price increase once milk prices begin to rise [3] Group 4 - Revenue forecasts for Modern Dairy are projected at 14.44 billion CNY, 15.28 billion CNY, and 16.06 billion CNY for 2025-2027, with net profits of 310 million CNY, 750 million CNY, and 1.1 billion CNY respectively [3] - The estimated EPS for 2025-2027 is 0.04 CNY, 0.10 CNY, and 0.14 CNY, with a target price set at 1.3 HKD based on an increased valuation due to the anticipated industry reversal [3]

Core Viewpoint - Modern Dairy's Tangshan farm exemplifies the integration of technology and nature in dairy farming, showcasing advancements in livestock management and renewable energy utilization [1][5]. Group 1: Technological Advancements in Dairy Farming - The Tangshan farm features modernized cow housing equipped with advanced systems such as intelligent TMR feeding, self-sensing fans, precise spraying devices, estrus forecasting systems, and intelligent waste management [3]. - A smart system platform monitors the health status of each cow in real-time, ensuring optimal care and maximizing milk production through automated milking and quality control systems [3]. Group 2: Renewable Energy Integration - The farm has established a 39.8 MW centralized photovoltaic power station on the roofs of cow houses, utilizing a "full grid connection" model for sustainable green electricity supply [5]. - This innovative "photovoltaic + farm" system creates a synergistic relationship between energy production and agricultural practices, enhancing overall efficiency [5]. Group 3: Environmental Sustainability - The farm's circular system contributes to significant environmental benefits, including annual savings of over 10,000 tons of standard coal and reductions in carbon dioxide emissions by tens of thousands of tons, with an annual electricity generation exceeding 50 million kWh [6]. - The integration of photovoltaic panels and biogas projects establishes a closed-loop system that transforms waste into renewable energy, promoting a zero-carbon cycle [6]. Group 4: Commitment to Quality - During the Xiaoman season, the Tangshan farm leverages its expertise in breeding technology and quality management to create a scientifically sound, comfortable, and environmentally friendly growth environment for dairy cows, ensuring high-quality milk production [8].

Investment Rating - The report maintains an "OUTPERFORM" rating for China Modern Dairy [2][9][6] Core Views - The turning point for milk prices is approaching, with expectations for both volume and price increases [3][5] - The company has demonstrated significant cost control, leading to an industry-leading ability to reduce costs [4][13] - The industry is experiencing a pronounced Matthew effect, with the company gaining market share despite overall declines in milk production [5][14] Financial Summary - Revenue projections for China Modern Dairy are estimated at RMB 14.44 billion, RMB 15.28 billion, and RMB 16.06 billion for 2025, 2026, and 2027 respectively [6][15] - Net profit attributable to shareholders is expected to be RMB 310 million, RMB 750 million, and RMB 1.1 billion for the same years [6][15] - The company’s gross margin for raw milk business is projected to improve to 31.2% in 2024, reflecting effective cost management [4][13] Market Dynamics - The raw milk price has stabilized at RMB 3.07 per kilogram, indicating a bottom consolidation phase [3][11] - The cattle herd is decreasing at a rate of approximately 40,000 head per month, contributing to the anticipated rebound in milk prices [12][3] - The company’s raw milk sales reached 2.893 million tons in 2024, a 13.6% year-on-year increase, indicating strong performance against industry trends [5][14]

Investment Rating - The report maintains an "OUTPERFORM" rating for China Modern Dairy [2][9][6] Core Views - The turning point for milk prices is approaching, with expectations for both volume and price increases [3][5][14] - The company has demonstrated significant cost control, leading to an industry-leading ability to reduce costs [4][13] - The industry is experiencing a pronounced Matthew effect, with the company gaining market share despite overall declines in milk production [5][14] Financial Summary - Revenue projections for China Modern Dairy are as follows: 2025: 14.44 billion yuan, 2026: 15.28 billion yuan, 2027: 16.06 billion yuan [6][15] - Net profit attributable to shareholders is expected to be 310 million yuan in 2025, 750 million yuan in 2026, and 1.1 billion yuan in 2027 [6][15] - The gross margin for the raw milk business is projected to improve to 31.2% in 2024, up 2.8 percentage points year-on-year [4][13] Market Dynamics - The raw milk price has stabilized at 3.07 yuan per kilogram, indicating a bottom consolidation phase [3][11] - The cattle herd is decreasing at a rate of approximately 40,000 head per month, contributing to the anticipated rebound in milk prices [12][3] - The company’s raw milk sales reached 2.893 million tons in 2024, a 13.6% year-on-year increase, indicating strong performance against industry trends [5][14]