Summary of Yuran Dairy's Conference Call Company Overview - **Company**: Yuran Dairy - **Industry**: Dairy Industry Key Points and Arguments Milk Price Performance - Yuran Dairy's average milk price for 2024 is 4.12 CNY per kilogram, compared to the national average of 3.32 CNY per kilogram, indicating a smaller decline in milk prices than the industry average due to the company's raw milk structure advantages [3][4] - The company benefits from a cost-plus pricing model for specialty fresh milk, which constitutes 29% of its production, and higher prices in southern pastures [3][4] - Forecasts suggest that the proportion of specialty fresh milk will slightly decrease to 25%-28% in the coming years, while the production growth rate of high-quality fresh milk may exceed that of specialty fresh milk [3][4] Cost Structure and Financials - The sales cost of milk is 2.77 CNY per kilogram, with feed costs accounting for 76% (2.1 CNY) [3][5] - Cash costs are approximately 2.62 CNY per kilogram, and total expenses for heifer costs are around 4.8 billion CNY [5] - The company aims to achieve a milk yield of 13 tons per cow by 2025 and reduce sales costs to below 2.7 CNY [3][16] Market Dynamics and Policy Impact - Demand-side policies aimed at stimulating consumption may accelerate the cycle reversal but could also delay the exit of small and medium-sized farms [6][7] - The dairy industry faces a supply-demand imbalance, with a long-term reliance on imports for about 30% of raw materials [7][8] - The government emphasizes ensuring basic production capacity and encouraging high-quality development to address the reliance on imports [7][8] Fair Value Adjustments - In 2024, the company experienced a significant fair value adjustment of 3.92 billion CNY, primarily due to differences in the depreciation accounting method for breeding cows under international accounting standards [9][10] - The valuation of breeding cows decreased from approximately 31,000 CNY to 26,000 CNY per head, impacting the overall biological asset value [9][10] Future Outlook - The company anticipates a reduction in capital expenditures in 2025, with a focus on returning value to shareholders through dividends based on positive free cash flow [18][19] - The company repaid 2 billion CNY in loans in 2024 and expects further improvements in financing costs in 2025 [19] - The overall gross profit target for 2025 is expected to remain stable despite potential declines in milk prices in the first half of the year [17] Competitive Positioning - Yuran Dairy's diversified raw material structure leads to higher feed costs compared to competitors, but the company benefits from higher margins during milk price upcycles due to its high-quality milk proportion [15][21] - The company maintains a stable relationship with major clients like Yili, which accounted for 94% of its raw milk revenue in 2024 [24] Industry Trends - The rise in global dairy prices, particularly for bulk powder, is attributed to inflation and rising costs abroad, which may support domestic demand and reduce imports [25][26] Additional Important Insights - The company’s operational efficiency and management improvements are expected to provide further cost optimization opportunities [16] - The dairy industry is undergoing a transition from rapid scale expansion to a focus on high-quality development, aligning with national strategic goals [8]

Investment Rating - The report initiates coverage with a "Buy" rating for the company [1][9] Core Views - The company has shown strong growth in raw milk business and effective cost control, with a revenue increase of 7.5% year-on-year to 20.1 billion yuan in 2024, despite a net loss of 6.91 billion yuan due to non-cash items [5][6][9] - The cash EBITDA increased significantly by 38.3% to 5.325 billion yuan, with a cash EBITDA margin of 26.5%, up 5.9 percentage points year-on-year [5] - The raw milk business revenue reached 15.101 billion yuan, a 17.0% increase, contributing 75.1% to total revenue, with total raw milk production rising by 24.2% to 3.75 million tons [6] Summary by Sections Financial Performance - In 2024, the company reported a revenue of 20.1 billion yuan, with a year-on-year growth of 7.5% [5] - The adjusted profit showed a strong performance, with cash EBITDA of 5.325 billion yuan, reflecting a significant increase of 38.3% [5] - The gross margin improved by 4.9 percentage points to 28.8% [5] Business Segments - The raw milk segment experienced robust growth, with revenue of 15.101 billion yuan, a 17.0% increase, and total production of 3.75 million tons, up 24.2% [6] - The feed solutions segment faced short-term pressure, with revenue declining by 13.7% to 4.995 billion yuan [7] - The premium feed business saw a 44.5% increase in sales for beef and sheep, indicating a breakthrough in non-dairy feed markets [7] Future Outlook - The company anticipates a gradual recovery in raw milk prices and an increase in production, with projected revenues of 21.856 billion yuan, 22.886 billion yuan, and 23.642 billion yuan for 2025, 2026, and 2027 respectively [9][11] - The earnings per share (EPS) are expected to improve from -0.06 yuan in 2025 to 0.23 yuan in 2027 [9][11]

Investment Rating - The report initiates coverage with a "Buy" rating for the company [1][9] Core Views - The company has shown strong growth in raw milk business and effective cost control, with a revenue increase of 7.5% year-on-year to 20.1 billion yuan in 2024, despite a net loss of 6.91 billion yuan due to non-cash items [5][6] - The cash EBITDA increased significantly by 38.3% to 5.325 billion yuan, with a cash EBITDA margin of 26.5%, up 5.9 percentage points year-on-year [5] - The raw milk business revenue reached 15.101 billion yuan, a 17.0% increase, contributing 75.1% to total revenue, with total raw milk production rising by 24.2% to 3.75 million tons [6] Summary by Sections Financial Performance - In 2024, the company reported a revenue of 20.1 billion yuan, with a year-on-year growth of 7.5% [5] - The adjusted profit showed a strong performance, with cash EBITDA of 5.325 billion yuan, reflecting a significant increase of 38.3% [5] - The gross margin improved by 4.9 percentage points to 28.8%, while the selling and administrative expense ratios slightly decreased [5] Business Segments - The raw milk segment experienced robust growth, with revenue of 15.101 billion yuan, a 17.0% increase, and total raw milk production reaching 3.75 million tons [6] - The company optimized its cost structure, reducing feed costs by 14.3% to 2.10 yuan per kilogram [6] - The solutions segment faced short-term pressure, with a revenue decline of 13.7% to 4.995 billion yuan [7] Future Outlook - The company anticipates a gradual recovery in raw milk prices and an increase in production, with projected revenues of 21.856 billion yuan, 22.886 billion yuan, and 23.642 billion yuan for 2025, 2026, and 2027 respectively [9][11] - The earnings per share (EPS) are expected to improve from -0.06 yuan in 2025 to 0.23 yuan in 2027, indicating a positive trend in profitability [9][11]

Core Viewpoint - The article discusses the performance and competitive advantages of YouRan, highlighting its revenue growth, milk production, and unique market positioning through specialty milk products supported by Yili [3][4][5]. Financial Performance - YouRan's raw milk revenue reached 15.1 billion RMB in 2024, up 17% from 12.9 billion RMB in 2023, while raw milk production increased to 3.75 million tons, a 24.1% rise from 3.02 million tons in the previous year [3]. - The average price of raw milk was 4.12 RMB per kg, down 5.9% from 4.38 RMB, indicating that revenue growth did not keep pace with production growth [3]. - The company reported a loss in the second half of the year due to a 5 billion RMB impairment charge on property and equipment, primarily because of reduced sales in the feed business [6]. Market Positioning - YouRan's milk price is significantly higher than the national average, which has been around 3.15 RMB, due to its specialty milk products and support from Yili [4][5]. - The company has expanded its dairy herd to 622,000 cows, a 27% increase compared to Modern Dairy's 490,000 cows, and has introduced 20,000 goats for specialty milk production [5]. Operational Insights - The proportion of breeding cows increased to 52.3%, which is expected to lower costs in the future, although growth rates may slow down [5]. - The feed business saw a decline in revenue from 5.8 billion RMB last year to 5 billion RMB this year, indicating operational challenges [6]. Profitability Metrics - The gross profit margin for raw milk improved to 32.7% in 2024, up nearly 4 percentage points from 28.6% in 2023, reflecting better cost management despite lower sales volumes [11]. - EBITDA and pre-impairment profits showed significant growth, but comparisons with mid-year results indicate that earlier performance was even stronger [12].

Core Viewpoint - In 2024, the dairy industry leader, Youran Dairy, achieved a counter-cyclical growth performance, demonstrating strategic resilience and efficient operations, with a revenue of 20.096 billion yuan, a year-on-year increase of 7.5% [1] Financial Performance - Youran Dairy reported a significant reduction in net profit loss by 34.2%, with a cash EBITDA growth of 38.3% to 5.325 billion yuan, indicating improved profitability [1] - The company achieved a positive free cash flow of 240 million yuan due to increased operating cash flow and reduced capital expenditures [1] - The gross profit margin improved to 28.8%, up by 4.9 percentage points, while the interest-bearing debt ratio decreased by 1.2 percentage points [2] Operational Efficiency - The company enhanced operational efficiency and cost control through technology empowerment and lean management, benefiting from its full industry chain business model [2] - Youran Dairy's raw milk business revenue reached 15.1 billion yuan, a year-on-year increase of 17%, with a gross margin of 32.7%, up by 4.1 percentage points [3] - The annualized yield per cow increased by 5% to 12.6 tons, with the company operating 97 modern farms [3][4] Product Innovation and Market Expansion - Youran Dairy launched new organic and goat milk farms, expanding its specialty fresh milk product line to eight varieties, which are less affected by raw milk price fluctuations and have high added value [5] - The company introduced innovative products in its ruminant feed solutions, achieving a gross margin of 16.8% in this segment [7] - The feed business saw a 44.5% year-on-year increase in sales volume, driven by new product launches and market expansion efforts [7][8] Research and Development - Youran Dairy significantly increased its R&D investment by 76%, with a team of nearly 400 people, resulting in 12 new patents and a total of 91 core patents [9] - The company developed advanced breeding technologies, including sex-controlled embryos, which enhanced its breeding efficiency and economic benefits [8][10] Industry Outlook - The dairy industry is undergoing profound changes, but favorable policies and a recovering consumer market present significant growth potential for Youran Dairy [11] - Analysts are optimistic about the company's prospects, anticipating benefits from the reversal of the raw milk cycle and potential profit growth [11]

Financial Performance - Revenue for the year ended December 31, 2024, was RMB 20,096,160 thousand, representing a 7.5% increase from RMB 18,693,896 thousand in 2023[3] - Gross profit increased by 29.4% to RMB 5,782,990 thousand compared to RMB 4,469,785 thousand in the previous year[3] - The company reported a net loss attributable to owners of RMB 690,890 thousand, a significant improvement from a loss of RMB 1,049,980 thousand in 2023[3] - EBITDA for the year was RMB 5,324,910 thousand, reflecting a 38.3% increase from RMB 3,851,418 thousand in the prior year[3] - The company did not recommend a final dividend for the year ended December 31, 2024[3] - Other income rose to RMB 549,370 thousand from RMB 453,821 thousand, indicating a growth of 21.0%[8] - The cost of sales increased to RMB 18,782,079 thousand from RMB 17,499,357 thousand, reflecting a rise of 7.3%[8] - The company experienced a loss of RMB 774,465 thousand before tax, an improvement from a loss of RMB 1,359,504 thousand in the previous year[8] - Total comprehensive loss for the year was RMB 936,534 thousand, compared to RMB 1,511,836 thousand in 2023, showing a reduction of 38.1%[10] - The annual loss for the group in 2024 was RMB 690,890,000, a decrease from RMB 1,049,980,000 in 2023, indicating an improvement in financial performance[55] Assets and Liabilities - Total assets increased to RMB 35,300,474 thousand in 2024 from RMB 34,793,319 thousand in 2023, representing a growth of approximately 1.46%[12] - Non-current assets decreased slightly to RMB 22,546,780 thousand in 2024 from RMB 25,285,148 thousand in 2023, a decline of about 10.9%[13] - Current liabilities rose to RMB 21,109,887 thousand in 2024, up from RMB 20,914,580 thousand in 2023, indicating an increase of approximately 0.93%[13] - The company's net asset value decreased to RMB 12,159,758 thousand in 2024 from RMB 13,098,695 thousand in 2023, a decline of about 7.2%[13] - Cash and cash equivalents dropped significantly to RMB 829,310 thousand in 2024 from RMB 3,935,982 thousand in 2023, a decrease of approximately 78.9%[12] - The company's goodwill remained unchanged at RMB 672,014 thousand for both 2024 and 2023[12] - The company's total equity attributable to owners decreased to RMB 11,295,246 thousand in 2024 from RMB 11,830,718 thousand in 2023, a decline of approximately 4.5%[13] Production and Sales - The annualized milk production per cow (excluding certain breeds) increased to 12.6 tons from 12.0 tons, marking a 5.0% improvement[3] - Revenue from raw milk sales is RMB 15,100,802,000 for 2024, compared to RMB 12,902,987,000 in 2023, reflecting an increase of about 17%[32] - Revenue from feed sales decreased to RMB 4,446,410,000 in 2024 from RMB 5,209,450,000 in 2023, a decline of approximately 14.6%[32] - The total raw milk production for the company was 3,747,448 tons, with an annualized yield per cow of 12.6 tons, reflecting a 5.0% increase from the previous year[68] - The volume of raw milk sold increased by 24.6% from 2,945,840 tons in 2023 to 3,669,563 tons in the reporting period[125] Costs and Expenses - Total sales cost rose to RMB 18,782,079 thousand in 2024, compared to RMB 17,499,357 thousand in 2023, indicating an increase of about 7.3%[45] - The total employee costs rose to RMB 965,947,000 in 2024, compared to RMB 876,966,000 in 2023, marking an increase of about 10.1%[54] - Administrative expenses increased by 3.7% from RMB 778 million in 2023 to RMB 807 million, with a decrease in the proportion of administrative expenses to revenue from 4.2% to 4.0%[141] - Sales and distribution expenses rose by 2.1% from RMB 620 million in 2023 to RMB 632 million, with the proportion of these expenses to revenue decreasing from 3.3% to 3.1%[140] - Other expenses surged by 74.6% from RMB 70 million in 2023 to RMB 123 million, primarily due to increased R&D investments[142] Research and Development - The company’s research and development costs recognized in profit or loss increased to RMB 114,102,000 in 2024 from RMB 64,846,000 in 2023, showing a significant increase of approximately 76%[54] - R&D investment increased significantly by 76.0% year-on-year, reflecting the group's commitment to innovation in the dairy industry[106] - The group has established a leading ruminant nutrition database with over 1 million samples supports precise nutrition and efficient testing in livestock farming[111] Governance and Compliance - The company emphasizes strict corporate governance and has adhered to all applicable corporate governance code provisions during the reporting period[175] - The company has adopted the Corporate Governance Code and confirmed that all directors strictly adhered to the standards during the reporting period[178] - The audit committee has been established to review and supervise the financial reporting process and internal control systems[179] Sustainability and Environmental Initiatives - The group aims to achieve carbon peak by 2030 and carbon neutrality by 2050, actively implementing various carbon reduction measures[118] - The group successfully issued 49,600 tons of carbon credits through its biogas project, certified by the Verified Carbon Standard (VCS)[119] - The group has improved its sustainability assessment score by 13 points compared to the previous year, recognized as the "Best Progress Company" in the food industry[120] Market and Product Development - The company is focused on expanding its market presence and enhancing its product offerings[191] - The group has developed a diverse product matrix including A2 milk, DHA milk, organic milk, and goat milk, while optimizing feed conversion and precise nutrition[77] - The group successfully launched its proprietary brand product "Ju Wei Dian" and established regional agency cooperation with strategic suppliers, enhancing market coverage and brand influence[96]

Summary of the Conference Call for YouRan Dairy Industry Company Overview - YouRan Dairy is a leader in the upstream dairy industry in China, covering cow breeding, feed production, and raw milk production, with raw milk accounting for approximately 75% of its business and feed accounting for 24% [3][5][6] - The company has over 600,000 dairy cows and a market share of nearly 10% in raw milk production, making it the largest dairy farming company in China [3][5] Industry Characteristics - The dairy farming industry is characterized by supply rigidity and strong cyclicality, with a minimum of 26 months required for cows to start lactating after birth, leading to significant delays in capacity adjustments [3] - The average production cost of raw milk in China is approximately 3.46 RMB/kg, while the latest fresh milk price is 3.08 RMB/kg, resulting in losses for many dairy companies [13] Financial Performance - YouRan Dairy has experienced steady revenue growth, but net profit has been volatile, primarily due to the fair value assessment of biological assets, with losses of 2.3 billion RMB in 2022 and 3.1 billion RMB in 2023 [3][9][10] - The company’s revenue is projected to be 22.84 billion RMB in 2025 and 26.26 billion RMB in 2026, with net profits of 930 million RMB and 2.3 billion RMB, respectively [20] Market Dynamics - The current raw milk price cycle has been declining for 45 months, with a total drop of 31.3% from the peak price of 4.5 RMB/kg in July 2021 to the current price of approximately 3.08 RMB/kg [12][18] - The supply-demand balance is expected to improve by the second half of 2025, with a projected price of around 4.2 RMB/kg by 2026 [19] Strategic Partnerships - YouRan Dairy is closely tied to Yili Group, which is both its largest shareholder (33.93%) and its largest customer, accounting for 96% of its raw milk sales in 2023 [3][6][7] - The partnership allows YouRan to maintain a high sales price, approximately 20% above the market average, while only meeting 20% of Yili's demand, indicating significant growth potential [3][7] Investment Outlook - The investment outlook for YouRan Dairy is positive, especially as the raw milk price cycle is expected to reverse, presenting potential investment opportunities despite inherent risks such as low raw milk prices and disease outbreaks [21][23] - The company’s stock price volatility is largely influenced by changes in the fair value of biological assets, which can lead to significant losses during price downturns [21] Additional Insights - The dairy farming sector is facing challenges due to increased supply and declining demand, with a 6.52% drop in dairy product revenue over the past three years [15] - The industry is divided into three categories: large dairy enterprises with self-owned farms, large dairy groups, and socialized farms, with the latter experiencing a significant decline in stock [17] This summary encapsulates the key points from the conference call regarding YouRan Dairy and the broader dairy industry, highlighting the company's market position, financial performance, and future outlook.

Investment Rating - The report gives a "Buy" rating for the company, YouRan Agriculture [5]. Core Views - The report highlights that the raw milk industry is experiencing a cyclical downturn, but a reversal is expected soon due to supply adjustments and increasing demand [4][5]. - YouRan Agriculture is positioned as the leading raw milk supplier in China, benefiting from economies of scale and strong customer relationships, particularly with Yili Group [4][5]. Summary by Sections 1. Characteristics of the Raw Milk Industry - The raw milk industry is characterized by strong cyclicality, typically experiencing price fluctuations every five years, influenced by rigid supply and steadily increasing demand [3]. - Supply rigidity is due to the biological asset characteristics of dairy cows, which require at least 24 months from breeding to milk production, and the geographical concentration of production [3][4]. - High capital barriers exist for new entrants, with significant investment required to establish dairy farms, and strong quality requirements from large dairy enterprises [3][4]. 2. YouRan Agriculture Overview - YouRan Agriculture is the largest raw milk supplier in China, managing nearly 600,000 dairy cows across 96 farms, accounting for 9.7% of the national raw milk output [4]. - The company has a comprehensive supply chain covering breeding, feed, and milk production, achieving a milk yield of 12.6 tons per cow [4]. - The company has a strong customer base, with Yili Group being both the largest shareholder and customer, purchasing 12.45 billion yuan worth of raw milk in 2023, with prices approximately 20% higher than the market average [4]. 3. Raw Milk Price Cycle Characteristics - The current raw milk price cycle has been declining for 42 months since its peak in mid-2021, leading to significant capacity reduction in the industry [4]. - The report anticipates that by the second half of 2025, the raw milk industry will reach a supply-demand balance, leading to a price reversal [4][5]. 4. Profit Forecast and Valuation for YouRan Agriculture - The forecasted revenues for YouRan Agriculture from 2024 to 2026 are 2.086 billion, 2.284 billion, and 2.626 billion yuan, respectively, with net profits expected to turn positive by 2025 [5]. - The report estimates that the company's earnings per share (EPS) will improve from -0.1 yuan in 2024 to 0.6 yuan in 2026, reflecting the anticipated recovery in raw milk prices [5].

Investment Rating - The report gives a "Buy" rating for the company, YouRan Agriculture [5]. Core Views - The report highlights that the raw milk industry is experiencing a cyclical downturn, but a reversal is expected soon due to supply adjustments and increasing demand [4][5]. - YouRan Agriculture is positioned as the leading raw milk supplier in China, benefiting from economies of scale and strong customer relationships, particularly with Yili Group [4][5]. Summary by Sections 1. Characteristics of the Raw Milk Industry - The raw milk industry is characterized by strong cyclicality, typically experiencing price fluctuations every five years, influenced by rigid supply and steadily increasing demand [3]. - Supply rigidity is due to the biological asset characteristics of dairy cows, which require at least 24 months from breeding to milk production, and the geographical concentration of production [3][4]. - High capital barriers exist for new entrants, with significant investment required to establish dairy farms, and strong quality requirements from large dairy enterprises [3][4]. 2. YouRan Agriculture Overview - YouRan Agriculture is the largest raw milk supplier in China, managing nearly 600,000 dairy cows across 96 farms, accounting for 9.7% of the national raw milk output [4]. - The company has a comprehensive supply chain covering breeding, feed, and milk production, achieving a milk yield of 12.6 tons per cow [4]. - In 2023, YouRan sold 12.45 billion yuan worth of raw milk to Yili Group, with a sales price approximately 20% higher than the market average [4]. 3. Raw Milk Price Cycle Characteristics - The current raw milk price cycle has been declining for 42 months since its peak in mid-2021, leading to significant capacity reduction in the industry [4]. - The report anticipates that by the second half of 2025, the raw milk market will reach a supply-demand balance, potentially reversing the price cycle [4][5]. 4. YouRan Agriculture's Profit Forecast and Valuation - The forecast for YouRan's revenue from 2024 to 2026 is 2.086 billion, 2.284 billion, and 2.626 billion yuan, respectively, with net profits expected to turn positive by 2025 [5]. - The report estimates that the company's earnings per share (EPS) will improve from -0.1 yuan in 2024 to 0.6 yuan in 2026, reflecting the anticipated recovery in raw milk prices [5].

Investment Rating - The report initiates coverage with a "Buy" rating for the company [2]. Core Insights - The dairy farming industry is cyclical, with supply being the main factor affecting cycles. The domestic supply of raw milk is approximately 87%, while imports account for about 13%. The report anticipates a stabilization and potential rebound in raw milk prices by 2025 due to industry capacity reduction [5][6][16]. - The company, YouRan Dairy, is the largest raw milk supplier globally and has a comprehensive business model covering the entire dairy industry chain. The report highlights that the company is expected to see significant improvements in apparent profits as raw milk prices rise [7][27][36]. - The financial forecasts predict revenue growth from 210.12 billion to 242.81 billion CNY from 2024 to 2026, with a substantial increase in net profit from -0.05 billion to 23.69 billion CNY during the same period [8][44]. Summary by Sections Company Overview - YouRan Dairy's latest closing price is 2.60 HKD, with a total market capitalization of 101.21 billion HKD. The company has a total share capital of 3.893 billion shares and an asset-liability ratio of 68.71% [4]. Industry Analysis - The report indicates that the dairy industry is experiencing a phase of capacity reduction, which is expected to lead to a stabilization of raw milk prices in 2025. The average price of raw milk has been below production costs, prompting a decrease in the national dairy cow population by 2.1% year-on-year [6][19][23]. Financial Performance - The company has shown strong cash flow performance, with operating cash flows increasing from 22.66 billion CNY in 2021 to 43.9 billion CNY in 2023. Despite apparent profit losses due to declining raw milk prices, the company's financial health remains robust [37][36]. - The report forecasts significant revenue growth, with expected revenues of 210.12 billion, 224.83 billion, and 242.81 billion CNY for 2024, 2025, and 2026, respectively. The net profit is projected to improve dramatically from -0.05 billion CNY in 2024 to 23.69 billion CNY in 2026 [8][44]. Market Position - YouRan Dairy is positioned as a leader in the dairy industry, with a comprehensive supply chain that includes breeding, feed, and dairy farming. The company has a strong partnership with Yili, which is both its largest shareholder and customer, accounting for 94.28% of its raw milk sales [31][30].