Investment Rating - The report assigns a "Buy" rating for China Feihe (06186.HK) for the first time [1]. Core Views - China Feihe is positioned as a leading domestic infant formula brand, with a significant turning point in performance expected in 2024 due to channel reforms and a focus on high-end products [8]. - The company has a strong cash position and plans to increase its dividend payout ratio to 76% in 2024, highlighting its commitment to shareholder returns [8]. - The infant formula industry is anticipated to rebound, with a sustained trend towards high-end products, benefiting China Feihe's strategic focus [8]. Summary by Sections 1. High Dividend and Performance Turning Point - China Feihe is one of the earliest milk powder companies in China, focusing on infant formula and maintaining the top market share [14]. - The company has experienced a significant decline in performance from 2021 to 2023 but is expected to show improvements in 2024, with revenue and net profit projected to grow by 6.2% and 5.3% respectively [20][19]. 2. Strategic Focus on High-End Products - The company has shifted its focus to high-end infant formula products, with the ultra-high-end product line, Star Flying, increasing its revenue share from 22% in 2016 to 75% in 2024 [8][36]. - China Feihe has implemented a robust marketing strategy, achieving the highest brand recognition in the infant formula sector in China [49]. 3. Industry Demand and Market Position - The infant formula market in China is expected to see a marginal recovery, driven by a rebound in birth rates and supportive policies [8]. - China Feihe holds a market share of 17.5% in the infant formula sector, with potential for further growth compared to international competitors [8]. 4. Financial Forecast and Valuation - Revenue projections for China Feihe are set at 221.7 billion, 236.3 billion, and 251.7 billion yuan for 2025, 2026, and 2027 respectively, with corresponding net profits of 38.7 billion, 43.0 billion, and 47.3 billion yuan [1]. - The company is currently undervalued compared to peers, with a projected P/E ratio decreasing from 13x in 2025 to 10x in 2027 [8].

Core Viewpoint - China Feihe Limited is promoting awareness of "invisible absence" during the early growth stages of infants through its "528 China Baby Day" initiative, which began in 2018, advocating for scientific parenting and quality companionship [1][5] Group 1: Events and Initiatives - In 2025, the eighth "528 China Baby Day" will feature a series of activities focusing on parent-child companionship and scientific parenting in the AI era, utilizing both online and offline formats [1] - Feihe has launched the "1+3 Smart Parenting Guide" in collaboration with Sanlian Life Weekly, which emphasizes the importance of nutrition and parental roles during the critical early development phase of infants [2] - The guide includes a section on AI-assisted parenting, helping parents understand the role of AI while emphasizing their irreplaceable responsibilities [2] Group 2: Cultural Integration and Activities - Feihe's "528 China Baby Day" centers on "high-quality companionship" and integrates scientific parenting with contemporary trends, including a collaboration with Xi'an Museum for the "Smart Baby AI Visits National Treasures" event [3] - The company has created immersive experiences in Nanjing and Xi'an, allowing children to explore cultural wisdom through interactive activities [3] - An online AIGC challenge has been launched, encouraging parents and children to engage with AI technology while capturing precious moments of growth [3] Group 3: Research and Development - Feihe is a leading brand in infant formula, emphasizing research and innovation in early brain nutrition, collaborating with top research institutions like Harvard BCH and Tsinghua University [4] - In early 2025, Feihe will introduce a groundbreaking "fresh milk protein extraction technology," marking a new era in the industry [4] - The company has achieved significant milestones, with 153 new domestic and international patents in 2024, totaling 659 patents across various fields related to infant formula [4]

Group 1: China People's Insurance Group - In 2024, China People's Insurance Group provided risk coverage of 31.75 trillion yuan, paid out 448.5 billion yuan in claims, and handled over 180 million claims, leading the industry in all three metrics [1] - The company launched the first comprehensive insurance for pilot projects nationwide and issued the first batch of major technology innovation insurance products, with an investment scale of 32.7 billion yuan [1] - China People's Insurance Group signed the United Nations Principles for Sustainable Insurance and insured 11.59 million new energy vehicles, with green risk coverage of 184 trillion yuan and an investment scale of 100.4 billion yuan for green development [1] Group 2: Digital Financial Innovation - In 2024, China People's Insurance Group's insurance solutions for the computing power industry were included in the Ministry of Industry and Information Technology's pilot program for cybersecurity insurance services [2] - The company has developed over 150 general AI capabilities, with daily usage exceeding 1 million times, and its proprietary AI model products have been applied in over 10 scenarios [2] Group 3: Overseas Payment Services - In Q1 2025, UnionPay's mobile payment transactions in Australia and New Zealand increased by over four times year-on-year, with Auckland's public transport transactions growing tenfold since the launch of UnionPay's contactless payment service [5] - UnionPay has established a comprehensive payment service network in Australia and New Zealand, with nearly all POS merchants and ATMs accepting UnionPay payments [6] Group 4: JD Group's Supply Chain Advantage - JD Group launched a 200 billion yuan export-to-domestic sales support plan to help foreign trade enterprises expand into the domestic market, with thousands of companies already in substantive procurement discussions [7] - The company has implemented a trade-in program since 2015, covering over 200 categories and reaching over 90% of rural areas in China [7][8] Group 5: Yangtze River Pharmaceutical Group - Yangtze River Pharmaceutical Group is focused on building a world-class pharmaceutical brand and has been recognized for its intelligent manufacturing capabilities [9] - The company has established 80 traditional Chinese medicine planting bases and is committed to enhancing its health management services [10] Group 6: Luzhou Laojiao Group - Luzhou Laojiao Group integrates traditional culture with modern technology to enhance its competitive edge and promote high-quality development in the liquor industry [11] - The company has established a national-level solid-state brewing technology innovation center and is developing a digital platform for the entire industry chain [11] Group 7: China Feihe Limited - China Feihe emphasizes independent innovation to enhance its core competitiveness and has established a full industry chain in the dairy sector [13] - The company has developed domestic production lines for key dairy ingredients and launched a leading infant formula based on extensive breast milk research [14] Group 8: WeBank - WeBank has served over 420 million individual customers and more than 580,000 small and micro enterprises through its digital financial products [16] - The bank maintains a high level of technology investment, with over 50% of its staff being technology personnel, and has developed over 220 AI applications [16]

Core Viewpoint - The dialogue at the FBIF 2025 Food and Beverage Innovation Forum highlighted China Feihe's innovative research and product expansion strategy, focusing on a full age range from infants to the elderly, in response to market demands and demographic changes [1][2]. Group 1: Product Innovation and Development - China Feihe is currently the leading company in infant formula sales both domestically and globally, and is expanding its product offerings beyond infants to include children, youth, adults, and the elderly [1]. - The company is developing higher quality products that are closer to breast milk for infants, while also addressing the nutritional needs of the aging population in China [2]. Group 2: Research Initiatives - In 2022, China Feihe led a key research initiative under the Ministry of Science and Technology's "14th Five-Year Plan," aiming to establish the largest maternal and infant cohort study in China, with over 3,000 mother-infant pairs and more than 6,000 breast milk samples to analyze regional variations and their impact on child development [3]. Group 3: Raw Material Production - China Feihe has made significant advancements in domestic production of essential raw materials for infant formula, such as lactoferrin and whey protein, to reduce reliance on imports, especially in light of current trade tensions [4]. Group 4: Global Market Strategy - The company has established a production facility in Canada to cater to the North American market, designing products based on local breast milk characteristics, and is also exploring opportunities in Southeast Asia through local collaborations [5]. - Future plans include expanding infant products internationally while aligning research efforts with local scientists to better understand regional nutritional needs [6].

Core Insights - In 2024, China's total retail sales of consumer goods reached 48.79 trillion yuan, growing by 3.5%, marking the first time it fell below the GDP growth rate of 5% [1] - The fast-moving consumer goods (FMCG) industry is transitioning into a phase dominated by "stock competition," focusing on efficiency improvement, brand optimization, and structural adjustments [1] FMCG Company Performance - **Kang Shifu**: Achieved revenue of 806.51 billion yuan, a slight increase of 0.30%, with net profit rising by 19.80% to 37.34 billion yuan [2][6][8] - **Nongfu Spring**: Revenue of 428.96 billion yuan, up 0.50%, with net profit at 121.23 billion yuan, a marginal increase of 0.40% [2][6][9] - **Uni-President**: Revenue reached 303.32 billion yuan, a 6.09% increase, with net profit of 18.49 billion yuan, up 10.90% [2][6][10] - **China Foods**: Reported revenue of 214.92 billion yuan, a 0.20% increase, and net profit of 8.61 billion yuan, up 3.40% [2][6][11] - **Dongpeng Beverage**: Revenue surged to 158.39 billion yuan, a 40.63% increase, with net profit at 33.27 billion yuan, up 63.09% [2][6][12] - **Three Squirrels**: Revenue of 106.22 billion yuan, a significant increase of 49.30%, with net profit rising by 85.51% to 4.08 billion yuan [2][6][14] - **Liangpinpuzi**: Revenue decreased to 71.59 billion yuan, down 11.02%, with a net loss of 0.46 billion yuan [2][6][15] - **Zhi Zhi Food**: Revenue of 71.31 billion yuan, up 4.79%, with net profit of 8.49 billion yuan, up 5.82% [2][6][15] - **Tao Li Bread**: Revenue of 60.87 billion yuan, down 9.93%, with net profit of 5.22 billion yuan, down 9.05% [2][6][15] Industry Trends - The FMCG sector is experiencing a shift towards efficiency and brand optimization as the market matures, with companies adapting to changing consumer preferences and competitive pressures [1][16] - Companies like Dongpeng Beverage and Three Squirrels are successfully leveraging product innovation and market expansion to drive growth, while others like Liangpinpuzi face challenges due to strategic missteps [12][14][15] - The beverage segment, particularly tea drinks, is emerging as a key growth area for companies like Nongfu Spring, which is focusing on enhancing its product offerings and maintaining its market leadership [9][16] Dairy Industry Performance - **Yili**: Achieved revenue of 1157.80 billion yuan, a decline of 8.24%, with net profit of 84.53 billion yuan, down 18.94% [18][19] - **Mengniu**: Revenue fell to 886.75 billion yuan, down 10.09%, with a net profit of 1.05 billion yuan, a drastic drop of 97.83% [18][20] - **Bright Dairy**: Revenue of 242.78 billion yuan, down 8.33%, with net profit of 7.22 billion yuan, down 25.36% [18][21] - **Feihe**: Revenue increased to 207.50 billion yuan, up 6.00%, with net profit of 36.50 billion yuan, up 11.00% [18][22] - The dairy sector is facing significant challenges, with many companies reporting revenue and profit declines due to oversupply and weak consumer demand [22]

Core Insights - The dairy industry is undergoing a green transformation as ESG principles penetrate the real economy, with significant progress in carbon emission disclosure and reduction practices among leading dairy companies [1][2][4] - Despite improvements, structural contradictions in full value chain carbon reduction remain prominent, particularly in the low coverage of Scope 3 emissions accounting and the lack of technical standards for packaging recycling and supply chain carbon management [1][4] - The challenge of converting high carbon reduction investments into brand premiums amidst fluctuating consumer demand has emerged as a new issue for dairy companies balancing sustainable development with operational efficiency [1][7] Carbon Emission Disclosure - The disclosure of ESG information among listed dairy companies has improved, with 9 H-share listed dairy companies having published ESG or sustainability reports [1][2] - Leading companies like Yili and Mengniu achieved the highest MSCI ESG ratings of AA in 2024, reflecting their progress in ESG practices and information disclosure [2][3] - A total of 11 A-share listed dairy companies disclosed their 2024 ESG reports, with several companies clearly reporting their greenhouse gas emissions [2][3] Carbon Reduction Practices - Notable carbon reduction achievements include New Dairy's "Zero Carbon Dairy" action plan, aiming for peak carbon emissions by 2030 and a 5% annual reduction in carbon intensity [2][3] - Yili has set a target to reduce carbon emissions intensity by 50% by 2030 compared to 2012 levels, achieving this goal ahead of schedule [3][4] - H-share listed companies generally perform better in carbon emission disclosure, with many providing detailed Scope 3 emissions data [3][5] Challenges in Full Value Chain Carbon Reduction - The low disclosure rate of Scope 3 emissions highlights the shortcomings in carbon reduction and accounting across the entire value chain [4][5] - The release of the first low-carbon evaluation technical standard for the dairy industry aims to address monitoring and accounting challenges faced by companies of different sizes [4][5] - Companies like Mengniu and Yili are actively working on comprehensive carbon accounting across their supply chains, with Yili having completed 47.2% of its carbon inventory for core suppliers by the end of 2024 [5][6] Brand Premium and Market Dynamics - The dairy industry faces operational challenges, with many companies experiencing revenue declines in 2024, prompting a need to convert ESG practices into product premiums [6][7] - Yili and Mengniu are integrating ESG achievements into their brand strategies, offering carbon-neutral products to enhance consumer engagement [7][8] - The market is not yet mature enough for consumers to prioritize ESG performance in their purchasing decisions, indicating a need for companies to enhance internal management and operational efficiency to realize long-term value from ESG investments [7][8]

Core Viewpoint - The infant formula market is entering a "fertility subsidy" phase, with major companies like Yili, Junlebao, and Feihe announcing substantial subsidies to support pregnant families [1][10]. Group 1: Subsidy Announcements - Yili has launched a 1.6 billion yuan fertility subsidy, providing eligible families with at least 1,600 yuan in benefits, including eight nutritional products and twelve parenting rights [1]. - Junlebao also announced a 1.6 billion yuan subsidy for eligible families, starting from May 15 [9]. - Feihe has committed 1.2 billion yuan in subsidies, with eligible families receiving at least 1,500 yuan starting from early April [1][5]. Group 2: Implementation Differences - Feihe's subsidy process is relatively straightforward, allowing families to receive products quickly after verification [5]. - Yili's process is more complex, requiring participation in offline classes and specific product selection based on timing, which may not meet the immediate needs of families [6][12]. Group 3: Market Dynamics - The infant formula market is experiencing a contraction, with Nielsen IQ reporting a 9.8% decline in offline sales in 2024 [11]. - Despite the overall market decline, Yili's infant formula segment has shown a double-digit revenue growth, with a 7.53% increase in total revenue [12]. - Feihe has also reported a 6% revenue growth in 2024, driven by high-end products, particularly the Star Flying series, which saw a 60% increase in sales [14]. Group 4: Competitive Landscape - The competition among dairy companies is intensifying, with many firms launching fertility subsidies as a promotional strategy [8][10]. - The high profit margins associated with infant formula make it a critical market for dairy companies, with Yili's infant formula segment achieving a gross margin of 41.02% in 2024 [15]. - Companies are expected to continue introducing high-end products to optimize their offerings in response to market conditions [15].

Group 1 - Morgan Stanley's trading department has noted an increase in attention and trading activity in the Chinese dairy industry, influenced by government policies on infant formula and the industry's strong domestic characteristics [1] - Despite the anticipated poor performance in 2024, Yili's (600887.SH) 2025 performance guidance is reassuring, with sales, reported earnings, and recurring earnings expected to grow by 3.4%, 34%, and 80% year-on-year respectively [1] - The new target price for Yili is set at 35 RMB, up from 30 RMB, with an expected price-to-earnings ratio of 18 times for 2026, reaffirming it as the preferred stock in the Chinese dairy sector [1] Group 2 - Yili anticipates a reversal of the surplus in raw milk supply in the second half of 2025 due to reduced dairy farm capacity, rising beef prices accelerating farm closures, and ongoing trade wars pushing up feed costs [2] - This situation is viewed positively for the entire industry, leading to upgraded ratings for Mengniu (02319) and Feihe (06186) [2]

Core Viewpoint - China Feihe has released its 2024 Environmental, Social, and Governance (ESG) report, highlighting its commitment to sustainable practices and social responsibility through various initiatives aimed at ecological preservation and community welfare [1] Group 1: Environmental Initiatives - Feihe has actively responded to the national "dual carbon" strategy, implementing a "plant-animal cycle" ecological model that processes 40,000 tons of corn straw and 100,000 tons of manure annually, enhancing soil organic matter by 1% across 14,000 acres [1] - The model is projected to reduce carbon emissions by nearly 400,000 tons per year, equivalent to planting over 20 million trees, and has been recognized by the United Nations as a replicable solution for agriculture in high-altitude regions [1] - In 2024, Feihe's emission reduction initiatives saved 817,900 kWh of energy, conserved 138,400 tons of water, and reduced natural gas usage by 302,600 cubic meters, leading to a decrease of 1,143.8 tons of CO2 emissions [2] Group 2: Clean Energy and Sustainability - Feihe has completed the "coal-to-gas" project across all its factories, becoming the first in the dairy industry to do so, and has expanded its solar energy capacity, generating 20.96 million kWh in 2024, which reduced CO2 emissions by 11,300 tons [2] - The company utilized 15.77 million cubic meters of biomass biogas, resulting in a reduction of 31,000 tons of CO2 emissions [2] - Feihe's total environmental investment in 2024 reached 28.56 million yuan, with three factories achieving national-level green factory certification [2] Group 3: Social Responsibility and Innovation - Feihe has established an innovation ecosystem that spans basic research, technological breakthroughs, and industrial transformation, with 153 new domestic and international patents granted in 2024, totaling 659 patents [3] - The company has initiated a 1.2 billion yuan maternity subsidy program, providing at least 1,500 yuan to eligible pregnant families, positioning itself as a leader in supporting national fertility initiatives [3] - Feihe has created 170,000 jobs and helped over 160,000 farmers increase their income, contributing to the revitalization of rural areas in Heilongjiang [3]

Core Viewpoint - The Chinese dairy industry is undergoing a significant transformation driven by changes in population structure, particularly a decline in newborn numbers, prompting companies to shift from passive responses to proactive strategies, including substantial fertility subsidy programs aimed at stimulating birth rates and consumer potential [3][4][5]. Group 1: Market Dynamics - The infant formula market has shrunk from 188.5 billion yuan in 2020 to 157.2 billion yuan in 2023, with newborn numbers dropping to 9.02 million in 2023, nearly halving since 2016 [3][4]. - Major dairy companies like Feihe and Yili have launched substantial fertility subsidy plans, with Feihe committing 1.2 billion yuan and Yili 1.6 billion yuan to support eligible families [4][5]. - The introduction of these subsidies is a strategic response to a shrinking market, with companies aiming to capture consumer demand from pregnancy through early childhood [4][6]. Group 2: Competitive Strategies - The competition among dairy companies has shifted from price wars to subsidy wars, with a focus on user engagement and long-term customer relationships [5][6]. - Companies are leveraging these subsidies to bypass traditional retail channels, directly reaching consumers and reducing the influence of intermediaries [6][7]. - The trend of declining mother-baby retail stores, which have seen a 40% reduction in numbers over the past five years, has prompted companies to innovate their business models [6][8]. Group 3: Industry Implications - The high subsidies represent a "capital game" among leading firms, with market concentration increasing as the top five companies' market share rose by 7 percentage points to 68% in 2023 [8]. - Smaller regional brands face challenges in competing with the financial power of larger companies, leading to a potential reduction in their market presence [8]. - The long-term success of these subsidy initiatives will depend on the companies' ability to convert short-term incentives into lasting consumer loyalty through product quality and service [8].