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 increase 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]. Summary by Sections Company Overview - YouRan Dairy's latest closing price is HKD 2.60, with a total market capitalization of HKD 101.21 billion. 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 notes that the dairy industry is experiencing a reduction in capacity, with a 2.1% year-on-year decline in the national dairy cow inventory from January to October 2023. This reduction is expected to lead to a supply gap in 2026-2027 [6][23]. - The average price of raw milk fell below the cost of production, leading to significant losses in the industry. The average price in Q4 2024 is projected to be 3.11 CNY/kg, while the average cost of production is 3.3 CNY/kg [6][19]. Financial Projections - Revenue forecasts for YouRan Dairy are as follows: 2024 expected revenue of CNY 210.12 billion, 2025 at CNY 224.83 billion, and 2026 at CNY 242.81 billion, representing growth rates of 12.40%, 7.00%, and 8.00% respectively. The net profit attributable to the parent company is projected to improve significantly from a loss of CNY 0.05 billion in 2024 to a profit of CNY 23.69 billion in 2026 [8][44]. - The report anticipates that the company's EBITDA will increase from CNY 7.69 billion in 2024 to CNY 45.40 billion in 2026, indicating a strong recovery in profitability as raw milk prices rise [8][44]. Market Position - YouRan Dairy's largest shareholder is Yili, which also accounts for 94.28% of the company's raw milk sales. This close relationship is expected to enhance operational synergies [31][30]. - The company has a diversified product matrix, including various types of specialty fresh milk products, which positions it well in the market [27]. Cash Flow Analysis - The company's operating cash flow has shown consistent growth, reaching CNY 33.43 billion in the first half of 2024, significantly higher than its reported profits, indicating strong operational health [37][39].

Investment Rating - The report assigns a "Buy" rating for the company, with a target price of HKD 3.08 based on a 2026 P/E ratio of 7.5x [2]. Core Views - The company is expected to benefit from an improvement in cash flow and a reversal in the raw milk cycle, positioning it as a direct beneficiary in the industry [1][6]. - The company has a strong market position as the largest raw milk supplier in China, with significant collaboration with its core customer, Yili [6][13]. - The report anticipates a potential acceleration in the clearing of dairy farms, leading to a balance in raw milk supply and demand [6][54]. Financial Forecast and Investment Recommendations - Earnings per share are projected to be -0.05, 0.17, and 0.38 CNY for 2024, 2025, and 2026 respectively [2]. - Revenue is expected to grow from CNY 20.12 billion in 2024 to CNY 22.02 billion in 2026, with a CAGR of 6.4% [3]. - The company’s gross margin is forecasted to improve, with raw milk business gross margin reaching 32% in 2024H1 [25]. Company Overview - The company has expanded its scale through mergers and acquisitions, increasing its number of farms from 38 in 2018 to 96 by 2024H1, with raw milk production rising from 590,000 tons to 3.02 million tons during the same period [17][19]. - Yili has been a major customer, with over 90% of raw milk sales directed to Yili since 2018, ensuring a high sales rate close to 100% [21][6]. Market Dynamics - The report highlights that the decline in raw milk prices has led to increased pressure on dairy farms, with expectations of a reduction in dairy cow inventory by 300,000 to 400,000 heads in 2024 [54][56]. - The average price of fresh milk has decreased from CNY 4.4/kg in August 2021 to CNY 3.1/kg currently, indicating a significant market shift [37][49]. Profitability and Cost Structure - The company’s profitability is expected to improve, with a projected gross margin of 28.3% in 2024H1, benefiting from lower feed costs [25][31]. - The financial burden from biological asset impairments has impacted profits, with a net loss of CNY 470 million in 2024H1 [31][54]. Supply and Demand Balance - The report estimates that achieving a balance in raw milk supply and demand will require a reduction in dairy cow inventory to approximately 5.99 million heads by 2025 [56][58]. - The analysis indicates that if fresh milk demand increases by 3% in 2025, supply-demand balance could be reached by Q3 2025 [56][58].

Financial Performance - Revenue increased by 10.8% to RMB 10,054.9 million in the first half of 2024 compared to the same period in 2023[6] - Gross profit surged by 36.1% to RMB 2,848.9 million, with gross margin improving significantly[6] - Net loss attributable to owners narrowed by 66.6% to RMB 330.9 million[6] - Cash EBITDA grew by 45.3% to RMB 2,623.6 million[6] - Profit before biological asset fair value adjustment increased by 77.0% to RMB 1,804.0 million[6] - Revenue from raw milk business reached RMB 7.32 billion, accounting for 72.8% of total revenue, an increase of 18.9% compared to mid-2023[14] - Revenue from ruminant farming system solutions reached RMB 2.73 billion, accounting for 27.2% of total revenue[15] - Revenue increased by 10.8% from RMB 9,077 million in the first half of 2023 to RMB 10,055 million in the reporting period[48] - Gross profit margin rose to 28.3% from 23.1% in mid-2023, with raw milk business gross margin increasing to 32.4% from 28.3%, driven by lower procurement costs and improved operational efficiency[56] - Sales cost increased by 9.1% to RMB 9,328 million, mainly due to the growth in raw milk business and the impact of fair value adjustments on agricultural products[51][52] - Feed cost for high-quality and specialty raw milk decreased by 12.9% to RMB 2.17/kg, attributed to improved feed conversion rates and procurement cost control[53] - Revenue from ruminant farming solutions decreased by 6.3% to RMB 2,735 million, reflecting strategic adjustments in sales and cost control measures[50] - Other income increased by 46.8% to RMB 265 million, driven by higher subsidies and interest income[59] - Sales and distribution expenses increased slightly by 1.1% to RMB 305 million, but the ratio to revenue decreased to 3.0% from 3.3% due to efficient cost management[61] - Administrative expenses rose by 3.8% to RMB 375 million, mainly due to increased insurance costs for new farms and herds, but the ratio to revenue dropped to 3.7%[62] - Other expenses increased by 26.4% from RMB 38 million in mid-2023 to RMB 48 million in the reporting period, primarily due to increased R&D investment[63] - Financing costs decreased by 17.6% from RMB 562 million in mid-2023 to RMB 463 million in the reporting period, mainly due to optimized debt structure[63] - Pre-tax loss improved from RMB 1,206 million in mid-2023 to RMB 404 million in the reporting period[63] - Income tax expenses increased by 69.1% from RMB 37 million in mid-2023 to RMB 63 million in the reporting period, driven by growth in taxable business profits[63] - Net loss improved from RMB 1,244 million in mid-2023 to RMB 467 million in the reporting period, supported by increased raw milk sales volume, lower unit sales cost, and reduced financing costs[63] - Cash EBITDA increased from RMB 1,805 million in 2023 to RMB 2,624 million in the reporting period[67] - Operating cash flow increased from RMB 2,666 million in mid-2023 to RMB 3,343 million in the reporting period[72] - Investment cash outflow decreased from RMB 6,694 million in mid-2023 to RMB 3,958 million in the reporting period, mainly due to reduced payments for biological assets and financial assets[72] - Financing cash outflow was RMB 2,199 million in the reporting period, compared to an inflow of RMB 3,816 million in mid-2023, primarily due to higher repayments of bank and other borrowings[73] - Adjusted profit before biological asset fair value changes improved from RMB 1,019 million in mid-2023 to RMB 1,804 million in the reporting period[68] - The company's net leverage ratio increased to 180.8% as of June 30, 2024, up by 15.6 percentage points from 165.2% on December 31, 2023, primarily due to increased debt from strategic investments in dairy farms[76] - Capital commitments for property, plant, and equipment, as well as biological assets, decreased to RMB 1,253 million as of June 30, 2024, compared to RMB 1,617 million on December 31, 2023, reflecting reduced investment in dairy farm construction[77] - The company's total bank and other borrowings amounted to RMB 24,665,442 thousand as of June 30, 2024, with RMB 15,753,723 thousand due within one year[74] - The company's total full-time employees as of June 30, 2024, were 12,536, with 53.3% being skilled workers and 22.3% being technical staff[82] - The company has no significant contingent liabilities as of June 30, 2024[75] - The company's assets, including shares in subsidiaries and restricted bank deposits, were used as collateral for certain bank and other borrowings, with a total value of RMB 103 million[78] - The company faces foreign exchange risk due to intercompany balances denominated in foreign currencies, which are monitored and managed by dedicated personnel[79] - The company has no significant investments or capital asset plans beyond those disclosed in the interim report as of June 30, 2024[81] - The company entered into agreements with China Genetics Holdings, Ltd. and its subsidiary, involving the issuance of shares and the purchase of shares in a subsidiary, as disclosed in announcements dated February 19, 2024, and July 15, 2024[81] - The company focuses on talent development through partnerships with universities, dual-track career progression, and a comprehensive training system to enhance employee capabilities and organizational efficiency[83] - Total salary expenses (excluding share-based payment expenses and retirement plan contributions) increased by 6.0% to RMB 821 million compared to RMB 775 million in mid-2023[84] - The company completed a share subscription with China Genetics, issuing 97,323,833 shares at RMB 1.45 per share, totaling RMB 141,119,558, representing 2.50% of the enlarged issued share capital[85] - The company indirectly holds 66.86% of the issued shares of Saikexing following the completion of the share transfer[85] - Yili holds a 34.80% stake in the company through its controlled entities, making it the largest shareholder[88] - PAG and its related entities collectively hold a 30.58% stake in the company[88] - The company has fully utilized the net proceeds of RMB 2,711 million from its global offering, with 75% allocated to growth initiatives, 15% to purchasing cows for farms, and 10% to working capital and general corporate purposes[95] - As of June 30, 2024, the company had no treasury shares and did not engage in any buyback or sale of its listed securities during the reporting period[96] - The company has adopted and complied with all applicable provisions of the Corporate Governance Code, except for the deviation mentioned below[97] - Yuan Jun has been appointed as both Chairman and CEO of the company since June 14, 2024, deviating from the Corporate Governance Code's requirement for role separation[98] - The Audit Committee reviewed the unaudited interim financial statements and discussed accounting policies and internal controls with senior management and auditors[100] - The company established an ESG Committee effective August 23, 2024, responsible for ESG strategy, risk management, and policy formulation[101] - No interim dividend was recommended for the reporting period[102] - Wu Xiang resigned as Non-Executive Director and Chairman, effective June 14, 2024[102] - Yang Huicheng was appointed as a Non-Executive Director, effective June 14, 2024[102] - The company maintains an active investor relations policy, facilitating communication with institutional investors and analysts[103] - The interim financial statements were reviewed by Deloitte Touche Tohmatsu in accordance with International Standard on Review Engagements 2410[104] - The review did not identify any material misstatements in the interim financial statements prepared under IAS 34[104] - Revenue for the first half of 2024 reached RMB 10,054.941 million, a 10.8% increase compared to RMB 9,076.655 million in the same period of 2023[106] - Gross profit for the first half of 2024 was RMB 2,848.892 million, up 36.1% from RMB 2,093.170 million in the first half of 2023[106] - Net loss for the first half of 2024 was RMB 466.707 million, a significant improvement from the net loss of RMB 1,243.568 million in the same period of 2023[106] - Total assets as of June 30, 2024, were RMB 35,018.887 million, slightly higher than RMB 34,793.319 million at the end of 2023[107] - Total liabilities as of June 30, 2024, were RMB 19,501.634 million, a decrease from RMB 20,914.580 million at the end of 2023[107] - Equity attributable to the company's owners as of June 30, 2024, was RMB 11,469.470 million, down from RMB 11,830.718 million at the end of 2023[108] - Non-current assets increased to RMB 35,018.887 million as of June 30, 2024, compared to RMB 34,793.319 million at the end of 2023[107] - Current liabilities decreased to RMB 19,501.634 million as of June 30, 2024, from RMB 20,914.580 million at the end of 2023[107] - Net current liabilities stood at RMB 11,072.054 million as of June 30, 2024, compared to RMB 9,508.171 million at the end of 2023[108] - Total equity as of June 30, 2024, was RMB 12,601.099 million, a slight decrease from RMB 13,098.695 million at the end of 2023[108] - Operating cash flow for the six months ended June 30, 2024, was RMB 3,347,908 thousand, an increase from RMB 2,694,538 thousand in the same period in 2023[110] - Net cash used in investing activities for the six months ended June 30, 2024, was RMB 3,957,784 thousand, compared to RMB 6,694,176 thousand in the same period in 2023[110] - Net cash used in financing activities for the six months ended June 30, 2024, was RMB 2,198,596 thousand, compared to net cash generated of RMB 3,816,200 thousand in the same period in 2023[110] - The company's current liabilities exceeded current assets by RMB 11.1 billion as of June 30, 2024[111] - The company expects to have sufficient funds to meet its liabilities due within the next 12 months, relying on expected cash flows from operations, unused bank loan facilities, and the renewal of certain bank loans totaling approximately RMB 11 billion[111] - The company's total equity as of June 30, 2024, was RMB 12,601,099 thousand, compared to RMB 13,212,037 thousand as of June 30, 2023[109] - The company reported a net loss and total comprehensive expense of RMB 497,596 thousand for the six months ended June 30, 2024, compared to a net loss and total comprehensive expense of RMB 1,398,494 thousand in the same period in 2023[109] - The company received RMB 141,120 thousand in prepayments for the issuance of shares during the six months ended June 30, 2024[110] - The company made payments of RMB 142,923 thousand for the acquisition of additional interests in subsidiaries during the six months ended June 30, 2024[110] - The company's cash and cash equivalents decreased by RMB 2,813,273 thousand during the six months ended June 30, 2024, compared to a decrease of RMB 211,501 thousand in the same period in 2023[110] - Revenue from raw milk sales increased to RMB 7,320,419 thousand in H1 2024, up 18.9% from RMB 6,156,918 thousand in H1 2023[117] - Total revenue for H1 2024 reached RMB 10,054,941 thousand, an increase of 10.8% compared to RMB 9,076,655 thousand in H1 2023[117] - Revenue from feed sales decreased to RMB 2,436,934 thousand in H1 2024, down 7.7% from RMB 2,639,242 thousand in H1 2023[117] - Revenue from breeding products sales dropped to RMB 65,909 thousand in H1 2024, a 30.3% decrease from RMB 94,510 thousand in H1 2023[117] - Segment profit for raw milk business rose to RMB 2,023,803 thousand in H1 2024, up 53.6% from RMB 1,317,336 thousand in H1 2023[118][120] - Total segment profit increased to RMB 2,302,875 thousand in H1 2024, a 51.4% rise from RMB 1,521,299 thousand in H1 2023[118][120] - Pre-tax loss narrowed to RMB 403,722 thousand in H1 2024, significantly improved from RMB 1,206,320 thousand in H1 2023[118][120] - The company will apply revised IAS 7 and IFRS 7 standards for supplier financing arrangements starting January 1, 2024, affecting liabilities and cash flow disclosures[116] - Depreciation and amortization directly deducted from profit amounted to RMB 335,194 thousand in H1 2024[122] - Additions to non-current assets totaled RMB 3,403,381 thousand in H1 2024[122] - Revenue from raw milk sales to Customer A increased to RMB 6,901,033 thousand in 2024, up from RMB 5,978,328 thousand in 2023, reflecting a growth of 15.4%[125] - Total sales cost for raw milk after fair value adjustment rose to RMB 7,079,785 thousand in 2024, compared to RMB 5,996,779 thousand in 2023, an increase of 18.1%[126] - Other income, including government subsidies and rental income, totaled RMB 264,938 thousand in 2024, up from RMB 180,508 thousand in 2023, a significant increase of 46.8%[129] - Financing costs decreased to RMB 462,959 thousand in 2024 from RMB 561,950 thousand in 2023, a reduction of 17.6%[131] - The company's investment in associates amounted to RMB 1,167,607 thousand, with a share of losses from associates at RMB 26,882 thousand[124] - The fair value adjustment for raw milk costs increased to RMB 2,134,191 thousand in 2024 from RMB 1,583,197 thousand in 2023, a rise of 34.8%[126] - The company's total sales cost for feed after fair value adjustment was RMB 2,017,066 thousand in 2024, down from RMB 2,350,032 thousand in 2023, a decrease of 14.2%[126] - The company's total sales cost for breeding products decreased to RMB 44,105 thousand in 2024 from RMB 50,200 thousand in 2023, a reduction of 12.1%[126] - The company's total sales cost for dairy farming consumables increased to RMB 187,117 thousand in 2024 from RMB 155,332 thousand in 2023, a growth of 20.5%[126] - The company's total sales cost for the period was RMB 9,328,073 thousand in 2024, up from RMB 8,552,343 thousand in 2023, an increase of 9.1%[126] - The company's loss for the period was RMB 330,873 thousand, compared to RMB 992,017 thousand in the same period last year, representing a significant reduction in losses[136] - Total depreciation and amortization increased to RMB 660,018 thousand from RMB 532,873 thousand year-over-year, primarily driven by higher depreciation of property, plant, and equipment[135] - The company invested RMB 414,477 thousand in construction-in-progress for expanding dairy farming operations, a decrease from RMB 791,828 thousand in the same period last year[138] - Biological assets increased to RMB 14,699,973 thousand as of June 30, 2024, up from RMB 14,606,110 thousand at the end of 2023, with significant growth in dairy cattle and dairy goat populations[141] - Sales receivables increased to RMB 1,107,977 thousand (net of credit loss provisions) as of June 30, 2024, compared to RMB 792,071 thousand at the end of 2023, with 80.4% of receivables within 90 days[142][143] - The company recognized RMB 49,584 thousand in right-of-use assets from new lease agreements with terms ranging from 3 to 19 years[138] - Goodwill remained unchanged at RMB 672,014 thousand, with no impairment indicators identified for the acquired businesses[139][140] - Employee costs increased to RMB 923,357 thousand from RMB 867,023 thousand year-over-year, primarily due to higher salaries and allowances[135] - The company did not declare or pay any dividends for the interim period, maintaining the same policy as the previous year[137] - Accounts receivable from related parties increased to RMB 1,221,750 thousand as of June 30, 2024, up from RMB 1,099,751 thousand at the end of 2023[142] - Impairment losses under the expected credit loss model decreased to RMB 8,124 thousand in the first half of 2024, compared to RMB 17,525 thousand in the same period of 2023[147] - Prepay

Financial Performance - Revenue for the six months ended June 30, 2024, was RMB 10,054,941 thousand, representing a 10.8% increase from RMB 9,076,655 thousand in the same period of 2023[2]. - Gross profit for the period was RMB 2,848,892 thousand, compared to a loss of RMB 330,873 thousand in the previous year, marking a significant improvement of 36.1%[2]. - EBITDA for the period was RMB 2,623,640 thousand, reflecting a 45.3% increase from RMB 1,805,286 thousand in the prior year[2]. - Net profit before adjustments for biological asset fair value changes was RMB 1,804,038 thousand, a 77.0% increase from RMB 1,019,399 thousand in the same period last year[2]. - The company reported a net loss of RMB 466,707 thousand for the period, a significant reduction from a loss of RMB 1,243,568 thousand in the same period of 2023[5]. - The total comprehensive loss for the period was RMB 497,596 thousand, a decrease from RMB 1,398,494 thousand in the same period last year[5]. - The company reported a pre-tax loss of RMB 403,722 thousand for the six months ended June 30, 2023[18]. - The company reported a loss of RMB 2,270,745 thousand from the fair value of biological assets less cost of sales for the six months ended June 30, 2023[18]. - The company reported a net foreign exchange gain of RMB 203 thousand for the six months ended June 30, 2024, compared to a loss of RMB 725 thousand in 2023, indicating a positive turnaround[26]. - The company reported a total of RMB 563,188,000 in notes payable as of June 30, 2024, down from RMB 764,849,000 as of December 31, 2023, indicating a decrease of approximately 26.4%[46]. Revenue Breakdown - Revenue for raw milk sales reached RMB 7,320,419 thousand in 2024, up from RMB 6,156,918 thousand in 2023, representing a growth of approximately 18.9%[15]. - Revenue from raw milk sales reached RMB 6,901,033 thousand for the six months ended June 30, 2024, compared to RMB 5,978,328 thousand in the same period of 2023, representing an increase of approximately 15.4%[23]. - The company’s segment performance for raw milk business showed external customer revenue of RMB 7,320,419 thousand and inter-segment revenue of RMB 865,926 thousand[17]. - The group’s total segment revenue for the six months ended June 30, 2024, was RMB 9,076,655 thousand, with a segment performance of RMB 1,521,299 thousand[20]. - The revenue from the ruminant animal breeding systematic solutions segment was approximately RMB 2.73 billion, accounting for about 27.2% of the group's total revenue during the reporting period[51]. Cost and Expenses - Total sales cost amounted to RMB 9,328,073 thousand for the six months ended June 30, 2024, up from RMB 8,552,343 thousand in 2023, indicating a year-over-year increase of about 9.1%[24]. - The sales cost of raw milk business increased by 12.1% from RMB 4,414 million in mid-2023 to RMB 4,946 million during the reporting period, mainly due to the commissioning of new farms and an increase in the number of dairy cows[98]. - Administrative expenses increased by 3.8% from RMB 361 million to RMB 375 million, mainly due to increased insurance investments for new farms and additional cattle[108]. - The group’s employee benefits expenses, including salaries and allowances, totaled RMB 923,357 thousand for the six months ended June 30, 2024, compared to RMB 867,023 thousand for the same period in 2023[31]. Assets and Liabilities - As of June 30, 2024, total assets amounted to RMB 35,018,887 thousand, an increase from RMB 34,793,319 thousand as of December 31, 2023, representing a growth of approximately 0.65%[6]. - Current liabilities decreased to RMB 19,501,634 thousand from RMB 20,914,580 thousand, a reduction of about 6.73%[7]. - Non-current liabilities decreased to RMB 11,345,734 thousand from RMB 12,186,453 thousand, reflecting a decline of approximately 6.92%[7]. - The company's net asset value as of June 30, 2024, was RMB 12,601,099 thousand, down from RMB 13,098,695 thousand, a decrease of about 3.79%[7]. - The total amount of capitalized borrowing costs for qualifying assets was RMB 477,818 thousand for the six months ended June 30, 2024, compared to RMB 591,951 thousand in 2023, reflecting a decrease of approximately 19.3%[28]. Cash Flow - The net cash generated from operating activities was RMB 3,343 million for the first half of 2024, up from RMB 2,666 million in the same period last year[119]. - The net cash used in investing activities was RMB 3,958 million, primarily due to payments for biological assets, property, plant, and equipment[120]. - Net cash used in financing activities for the reporting period was RMB 2,199 million, primarily due to new bank and other borrowings of RMB 9,670 million and repayment of bank and other borrowings principal and interest of RMB 11,737 million[121]. - The group experienced a net decrease in cash and cash equivalents of RMB 2,813 million during the reporting period[119]. Operational Highlights - The company continues to focus on the production and sale of raw milk and related products, maintaining its core business strategy in the Chinese market[8]. - The annualized milk yield per cow (excluding heifers) increased to 12.6 tons, up 3.3% from 12.2 tons in the previous year[2]. - Raw milk production reached 1,796,950 tons for the six months ended June 30, 2024, representing a 25.0% increase compared to 1,437,138 tons in the same period of 2023[54]. - The total number of dairy cows increased by 3.2% to 601,294 as of June 30, 2024, from 582,739[53]. - The number of operational farms increased by 5 to 96 as of June 30, 2024, compared to 91 as of December 31, 2023[53]. Strategic Initiatives - The company has forecasted sufficient cash flow to meet its liabilities for at least the next 12 months, based on management's cash flow projections[10]. - The company is actively promoting digital management practices to enhance operational efficiency and reduce costs[49]. - The group is collaborating with Inner Mongolia Agricultural University on research to reduce methane emissions from dairy cows, leading to effective progress in the development of feed additives[62]. - The group has established a data-driven solution to enhance herd feeding efficiency, implementing lean management practices to improve production benefits[65]. - The group is committed to achieving carbon peak by 2030 and carbon neutrality by 2050, integrating sustainable development into its business strategy[89]. Governance and Compliance - The company has adopted corporate governance principles to promote effective internal control measures and enhance transparency and accountability to shareholders[133]. - The company established an Audit Committee in compliance with Listing Rule 3.21, consisting of three members, with the chair being an independent non-executive director possessing relevant professional qualifications[136]. - The company has formed an ESG Committee effective from August 23, 2024, to oversee ESG strategy planning, risk management, and policy setting[137]. - The company has established a comprehensive talent development system, integrating training and practical experience to cultivate elite talent[129].

Industry and Company Overview * **Industry**: Dairy industry, specifically focusing on milk production and sales. * **Company**: Youan Dairy, a leading dairy company in China. Key Points 1. Production and Inventory * **Current Year Growth**: Expected to achieve double-digit growth in milk production due to increased capacity from new and existing farms, higher proportion of dairy cows, and increased milk yield. * **Inventory**: Expected to remain stable at around 580,000 heads of dairy cows, with natural growth from mature cows and increased milk yield. 2. Pricing and Margins * **Milk Prices**: Market milk prices have decreased by over 12% year-on-year, but Youan Dairy's milk prices have remained stable due to its high-quality milk and strong brand. * **Feed Costs**: Feed costs are expected to decrease by mid-to-high single digits year-on-year, leading to improved gross margins. * **Gross Margins**: Expected to improve year-on-year due to lower feed costs and stable milk prices. 3. Profitability * **Operating Cash Flow and Gross Profit**: Expected to grow significantly year-on-year due to increased production and improved margins. * **Net Profit**: Expected to be affected by changes in the fair value of biological assets, particularly dairy cows, due to lower milk prices. 4. Industry Outlook * **Supply and Demand**: The dairy industry is currently experiencing a supply surplus, leading to lower milk prices. * **Consolidation**: Smaller dairy farms are struggling and are expected to exit the market, leading to increased consolidation in the industry. * **Long-term Outlook**: Expected to reach supply and demand balance by the end of the year, with milk prices gradually recovering next year. 5. Competitive Advantages * **Scale**: Youan Dairy's large-scale operations provide cost advantages and improved efficiency. * **Product Mix**: Strong focus on high-quality milk and specialty products, which offer price resilience. * **Technology**: Continuous improvement in milk yield and quality through technological advancements. * **Customer Relationships**: Strong relationships with downstream customers, ensuring stable sales and procurement. Additional Points * **Feed Cost Trends**: Feed costs have been decreasing due to lower global commodity prices and improved procurement strategies. * **Imported Milk Products**: Expected to continue declining as domestic milk production increases and consumer preferences shift towards fresh milk. * **Debt Levels**: Debt levels are manageable and expected to decrease as the company improves its operating performance and interest rates decline. * **Future Outlook**: Youan Dairy remains optimistic about the long-term prospects of the dairy industry and its own growth potential.

Summary of Conference Call Transcript Company/Industry Involved - The discussion revolves around the cattle farming industry, specifically focusing on the company's cattle herd management and production plans. Core Points and Arguments - The company is planning to increase its cattle herd size by the end of the year, potentially exceeding the current figure of 580,000 heads of cattle [1]. Other Important but Possibly Overlooked Content - The company is in the process of launching new ranches that were planned in the second half of the previous year, indicating ongoing expansion efforts in production capacity [1].

Financial Performance - For the fiscal year ending December 31, 2023, the company reported a revenue of RMB 18,693,896, representing a year-on-year increase of 3.6% from RMB 18,050,761 in 2022[7]. - The gross profit for the same period was RMB 4,469,785, which is a 5.8% increase compared to RMB 4,223,722 in the previous year[7]. - The company experienced a net loss attributable to shareholders of RMB (1,049,980), contrasting with a profit of RMB 414,771 in 2022, indicating a significant change[7]. - The cash EBITDA for the year was RMB 3,851,418, up 7.3% from RMB 3,591,036 in 2022[7]. - The company's revenue increased by 3.6% from RMB 18,051 million in 2022 to RMB 18,694 million in the reporting period[27]. - The raw milk business generated approximately RMB 12.9 billion in revenue, an increase of 18.9% compared to 2022, accounting for 69.0% of the total revenue during the reporting period[28]. - The cost of sales increased by 3.2% from RMB 16,959 million in 2022 to RMB 17,499 million, primarily due to growth in the raw milk business[71]. - Gross profit rose from RMB 4,224 million in 2022 to RMB 4,470 million, with a gross margin improvement from 23.4% to 23.9%[74]. Production and Operations - The raw milk production reached 3,020,182 tons, a substantial increase of 27.1% from 2,377,156 tons in the previous year[7]. - The total number of dairy cows increased to 582,739 heads, marking a 16.7% rise from 499,451 heads in 2022[8]. - The number of breeding cows rose to 284,208, which is a 22.7% increase from 231,709 in the previous year[8]. - The annual milk yield per breeding cow (excluding certain breeds) was 12.0 tons, a year-on-year increase of 5.3%, with the company's premium fresh milk farms achieving a yield of 12.3 tons[17]. - The group added 14 operational farms during the reporting period, expanding its strategic layout in both existing and new farms, including the goat milk sector[40]. - The company has established a new milk goat farm with a planned stock of 50,000 goats, which will be the largest single milk goat farm in China[37]. - The company operates 15 feed production bases and 15 forage production bases, with high-quality alfalfa accounting for approximately 53% of self-produced forage[28]. Technological Development and Innovation - The company aims to enhance technological value and lead the high-quality development of China's dairy industry[2]. - The company is expanding its product offerings in the specialty fresh milk category, including goat milk, which is expected to enrich its product matrix[2]. - The group implemented energy-saving and emission-reduction projects, completing upgrades to 53 farms by replacing coal and biomass boilers with air source heat pumps[40]. - The group utilized its proprietary smart farm management system "Hui Mu Yun" for precise monitoring of cow health, improving operational efficiency and reducing costs[39]. - The company has initiated research projects on low-carbon emission technologies in collaboration with agricultural research institutions, focusing on reducing greenhouse gas emissions in livestock farming[42]. - The company has developed key technologies such as genetic evaluation, sex control, and embryo technology to enhance the breeding of top dairy cattle and ensure national genetic resource security[58]. Sustainability and Corporate Responsibility - The company plans to continue its strategic focus on sustainable development, aiming for carbon peak by 2030 and carbon neutrality by 2050[68]. - The company is actively addressing employment issues for local farmers, enhancing agricultural productivity and income through its industry and technology advantages[68]. - The company has implemented no-till carbon-sequestering sowing technology on approximately 53,000 acres during the reporting period[53]. - The company has established county-level livestock service centers to address industry pain points and promote high-quality development[49]. - The company received the first "Animal Health Carbon Footprint Certification" in China in October 2023[25]. Governance and Management - The board consists of two executive directors, four non-executive directors, and three independent non-executive directors, with significant experience in the dairy industry[147]. - The company emphasizes strict internal control measures to enhance transparency and accountability to shareholders[159]. - The audit committee consists of three members, including two independent non-executive directors, ensuring oversight of financial reporting and internal controls[170]. - The company has a structured approach to board meetings, with all directors having access to necessary information and the ability to seek independent professional advice[169]. - The company has established appropriate insurance arrangements for directors and senior management against legal claims arising from corporate activities[168]. Market and Customer Relations - Revenue from the top five customers was RMB 13,671 million, accounting for 73.1% of total revenue, up from 64.0% in 2022[111]. - Sales to the largest customer, Yili Group, generated RMB 12,447 million, which constituted 96.5% of the total raw milk revenue, compared to 96.6% in 2022[111]. - The company has maintained a stable long-term cooperative relationship with its major customer, Yili Group[111]. - The company has established partnerships with universities to attract quality talent and enhance employee development[102]. Future Outlook and Strategic Initiatives - The company has set a future outlook with a revenue target of 1.5 billion RMB for the next fiscal year, indicating a projected growth of 25%[154]. - A strategic acquisition of a local dairy producer is in progress, which is anticipated to enhance production capacity by 30%[153]. - The company is investing 100 million RMB in technology upgrades to improve supply chain efficiency and product quality[154]. - The management team emphasizes a focus on sustainability, aiming for a 40% reduction in carbon emissions by 2025[155].

Financial Performance - Revenue for the year ended December 31, 2023, was RMB 18,693,896 thousand, representing a 3.6% increase from RMB 18,050,761 thousand in 2022[2] - Gross profit for the same period was RMB 4,469,785 thousand, up 5.8% from RMB 4,223,722 thousand in the previous year[2] - The company reported a net loss attributable to shareholders of RMB 1,049,980 thousand, compared to a profit of RMB 414,771 thousand in 2022[2] - Cash EBITDA for the year was RMB 3,851,418 thousand, reflecting a 7.3% increase from RMB 3,591,036 thousand in 2022[2] - The company reported a pre-tax loss of RMB 1,359,504,000 for the year ended December 31, 2023, indicating financial challenges[26] - The company recognized an impairment loss of RMB 120,966,000 related to goodwill, reflecting adjustments in future cash flow expectations[26] - The company’s financial assets recorded a fair value gain of RMB 160,429,000, contributing positively to the overall financial performance[26] - The company reported a significant increase in sales of raw milk, with revenue from this segment reaching RMB 12,447,239 thousand in 2023, compared to RMB 10,485,086 thousand in 2022, marking a growth of approximately 18.8%[32] - The company’s revenue from feed sales was RMB 5,209,450,000 in 2023, a decrease from RMB 6,576,398,000 in 2022, indicating a decline of approximately 20.83%[23] - The company reported a net loss from the sale of property, plant, and equipment amounting to RMB 18,531 thousand in 2023, compared to a loss of RMB 2,000 thousand in 2022[35] Production and Operations - Raw milk production increased by 27.1% to 3,020,182 tons from 2,377,156 tons in the previous year[2] - The number of dairy cows increased by 16.7% to 582,739 heads, with breeding cows accounting for 48.8% of the total[2] - The average annual yield per breeding cow increased by 5.3% to 12.0 tons, compared to 11.4 tons in 2022[64] - The group added 14 operational farms during the reporting period, expanding its capacity and entering the goat milk sector[69] - The company operates 91 modern farms across 17 provinces in China, with 14 new farms added during the reporting period[67] - The company’s feed solutions generated revenue of approximately RMB 5.79 billion, accounting for 31.0% of total revenue[60] - The company’s breeding business achieved sales of approximately 1,368,707 doses of frozen semen, with sexed embryo sales increasing by 270.0% compared to 2022[62] Financial Position - Total assets less current liabilities amounted to RMB 25,285,148 thousand, an increase from RMB 23,550,033 thousand in 2022[8] - Non-current liabilities increased to RMB 12,186,453 thousand from RMB 8,798,904 thousand in the previous year[8] - The company's equity attributable to shareholders decreased to RMB 13,098,695 thousand from RMB 14,751,129 thousand in 2022[9] - The company's net current liabilities as of December 31, 2023, amounted to RMB 9.5 billion[16] - The carrying amount of the company's biological assets, specifically breeding cows, was RMB 8,385,409,000 as of December 31, 2023, compared to RMB 7,204,357,000 in 2022, reflecting an increase of approximately 15.4%[18] - The carrying amount of the company's property, plant, and equipment was RMB 15,181,413,000 as of December 31, 2023, up from RMB 12,965,610,000 in 2022, indicating a growth of about 16.9%[19] Cash Flow and Investments - Cash generated from operating activities was RMB 4,390 million in the reporting period, up from RMB 2,548 million in 2022[116] - Cash used in investing activities was RMB 4,344 million, significantly lower than RMB 10,784 million in 2022, mainly due to reduced investments in biological assets and financial assets[116] - The company’s cash and cash equivalents increased to RMB 4,488 million at the end of the reporting period, compared to RMB 1,452 million at the end of 2022[115] - The company invested RMB 8,973,616 thousand in non-current assets during the year, reflecting a strategic focus on long-term growth[31] - The company has no major investments or capital asset plans as of December 31, 2023, indicating a focus on existing operations[125] Governance and Compliance - The company is committed to maintaining high standards of corporate governance and has adopted all applicable provisions of the corporate governance code[132] - The audit committee has reviewed the audited consolidated financial statements for the reporting period[132] - The company has established a nomination committee and a remuneration committee in addition to the audit committee[132] - The company has confirmed compliance with the standard code regarding securities trading by all directors during the reporting period[131] Strategic Initiatives - The company is focusing on high-quality development and digital management practices to enhance operational efficiency and expand its business scale[57] - The group launched a digital technology center to enhance digital competitiveness and drive business technology upgrades, aiming to become a leader in global livestock digital development[92] - The company has established partnerships with five major research institutions to enhance domestic grass competitiveness[81] - The company is actively engaged in research and development of new products and technologies to drive future growth[139] Market Conditions - The average price of fresh milk in China dropped to RMB 3.84 per kilogram in 2023, down approximately 7.7% from RMB 4.16 per kilogram in 2022[56] - The overall economic environment has posed challenges to the dairy industry, impacting milk prices and feed costs, but government policies are aimed at enhancing the competitiveness of domestic dairy products[56]

Financial Performance - For the six months ended June 30, 2023, the company's revenue was RMB 9,076.7 million, representing a 4.2% increase compared to RMB 8,707.0 million in the same period of 2022[11]. - The company's gross profit for the same period was RMB 2,093.2 million, showing a slight decrease of 0.2% from RMB 2,096.9 million year-on-year[11]. - The company reported a loss attributable to owners of RMB 992.0 million, compared to a profit of RMB 219.3 million in the previous year, indicating a significant decline in profitability[11]. - The cash EBITDA for the period was RMB 1,805.3 million, down 1.8% from RMB 1,837.6 million in the same period last year[11]. - The company reported a net loss of RMB 1,243,568 thousand for the six months ended June 30, 2023, compared to a profit of RMB 200,121 thousand in the same period of 2022, indicating a significant decline[143]. - The company recorded a pre-tax loss of RMB 1,206 million during the reporting period, compared to a pre-tax profit of RMB 233 million in mid-2022[83]. - The net loss for the reporting period was RMB 1,244 million, primarily due to a decline in gross margin and increased losses from biological assets[85]. Revenue Breakdown - Raw milk business revenue reached approximately RMB 6.16 billion, representing an 18.0% increase compared to mid-2022, accounting for 67.8% of total revenue[20]. - Revenue from raw milk sales reached RMB 6,156,918 thousand, up 17.96% from RMB 5,219,010 thousand in the previous year[161]. - The average price of raw milk decreased by 5.2% to RMB 4.39 per kilogram, down from RMB 4.63[23]. - Revenue from raw milk sales increased to RMB 5,978,328 thousand in 2023, up from RMB 5,028,566 thousand in 2022, representing a growth of 18.9%[173]. - The feed business generated revenue of approximately RMB 2.64 billion, accounting for 29.1% of total revenue[22]. Operational Metrics - The number of dairy cows increased by 20.6% to 539,400 from 447,335, with the number of breeding cows rising by 21.4% to 253,633[11]. - The company operated 85 modern farms with a total dairy cow inventory of nearly 540,000, producing approximately 1.44 million tons of raw milk during the reporting period[20]. - The annual milk yield per cow reached 12.2 tons, a 7.0% increase from mid-2022, with the Inner Mongolia farm achieving 12.8 tons[20]. - The company produced nearly 580,000 tons of concentrated feed during the reporting period, with over 60% of alfalfa grass meeting top quality standards[22]. Investment and Expansion - The company has established 85 farms, 15 feed production bases, and 15 forage production bases, covering 17 provinces and municipalities in China[3]. - The company is expanding into goat milk production, with a new goat farm planned to house 50,000 goats, which will be the largest single goat farm in China[27]. - The company is constructing multiple new farms in key dairy-producing provinces, expected to commence operations in the second half of 2023[27]. - The company has initiated the construction of a new feed production base in Hebei, which will increase total production capacity to 1.82 million tons upon completion[38]. Research and Development - The company has established a leading R&D platform focused on dairy cow nutrition and health, enhancing the quality of raw milk products[31]. - The company developed key technologies such as the "A2 cow genetic identification method" and established a platform for new livestock stem cell technology and gene editing, enhancing its capabilities in dairy production[51]. - The company has a research and development team of nearly 400 people and has obtained 76 core patent technologies as of June 30, 2023, covering various business segments[55]. Financial Position - As of June 30, 2023, the company's total bank borrowings amounted to RMB 25,821.188 million, an increase from RMB 20,559.056 million at the end of 2022[99]. - The net leverage ratio increased to 189.0% as of June 30, 2023, up from 135.0% at the end of 2022, primarily due to increased borrowings for the expansion of dairy farms[101]. - The company's cash and cash equivalents decreased to RMB 1,243.330 million as of June 30, 2023, from RMB 3,013.284 million at the end of 2022[94]. - The total salary expenditure for the reporting period was RMB 775 million, an increase of 12.3% from RMB 690 million in the mid-2022 report[112]. Corporate Governance and Compliance - The company is committed to maintaining high standards of corporate governance and has adopted all applicable code provisions[127]. - The audit committee has reviewed the interim financial statements and discussed accounting policies and internal controls with management[129]. - The company actively promotes investor relations and communication, engaging with institutional investors and financial analysts[137]. Market and Industry Trends - The average price of fresh milk in major producing provinces in China decreased by approximately 5.7% to RMB 3.96 per kilogram compared to RMB 4.20 per kilogram in mid-2022[17]. - The demand for high-quality breeding products remains strong, with imports of frozen bull semen increasing by 8.9% to 6.7171 million doses during the reporting period[17]. - The Chinese government has issued policies to support the dairy farming industry, enhancing barriers to entry and promoting modernization[18].

Financial Performance - Revenue for the six months ended June 30, 2023, was RMB 9,076,655 thousand, representing a 4.2% increase from RMB 8,706,955 thousand in the same period of 2022[2] - Gross profit for the same period was RMB 2,093,170 thousand, slightly down by 0.2% from RMB 2,096,933 thousand year-on-year[2] - The company reported a loss attributable to owners of RMB (992,017) thousand, compared to a profit of RMB 219,326 thousand in the prior year, indicating a significant decline[2] - Cash EBITDA for the period was RMB 1,805,286 thousand, down 1.8% from RMB 1,837,606 thousand in the previous year[2] - The company experienced a significant loss before tax of RMB (1,206,320) thousand for the period, compared to a profit of RMB 233,406 thousand in the same period last year[5] - The basic and diluted loss per share was RMB (0.26) compared to earnings of RMB 0.06 in the previous year[6] - Total revenue for the six months ended June 30, 2023, increased by 10.5% to RMB 9,076,655 thousand from RMB 8,706,955 thousand in the same period of 2022[82] - Revenue from raw milk business grew by 18.0% to RMB 6,156,918 thousand, driven by a 24.4% increase in sales volume to 1,402,485 tons[82] Assets and Liabilities - Non-current assets totaled RMB 32,673,545 thousand as of June 30, 2023, compared to RMB 31,877,107 thousand at the end of 2022[7] - Current assets decreased to RMB 13,075,970 thousand from RMB 11,569,210 thousand at the end of 2022[7] - As of June 30, 2023, the company's net current liabilities amounted to RMB 9,577 million, compared to RMB 8,327 million as of December 31, 2022[11] - Total assets less current liabilities were RMB 23,096,545 thousand, a decrease from RMB 23,550,033 thousand in the previous year[8] - Non-current liabilities, including bank and other borrowings, increased to RMB 7,619,392 thousand from RMB 6,731,381 thousand year-over-year[8] - The company's net asset value decreased to RMB 13,212,037 thousand from RMB 14,751,129 thousand as of December 31, 2022[8] Cash Flow - The company anticipates sufficient cash flow to meet its liabilities for at least the next 12 months, supported by expected cash flows from operations and available bank loan financing of approximately RMB 5.8 billion[11] - Net cash generated from operating activities was RMB 2,666 million during the reporting period, up from RMB 1,862 million in mid-2022[102] - Net cash used in investing activities was RMB 6,694 million, primarily due to payments for biological assets and financial assets[102] - Net cash generated from financing activities was RMB 3,816 million, mainly from new bank and other borrowings[103] - The ending cash and cash equivalents decreased to RMB 1,243 million from RMB 3,013 million in the same period of 2022[101] Operational Metrics - The number of dairy cows increased by 20.6% to 539,400 from 447,335, with the proportion of breeding cows rising to 47.0% from 46.7%[2] - Raw milk production reached 1,437,138 tons, a 24.9% increase from 1,150,873 tons in the same period last year[52] - The average total bacterial count and somatic cell count of raw milk were significantly better than the standards set by China and international benchmarks[77] - The company operates 15 feed production bases and 15 forage production bases, with a total feed production of nearly 580,000 tons during the reporting period[50] Market and Industry Challenges - The company’s management highlighted the ongoing challenges in the dairy farming industry due to declining milk prices and high feed costs, impacting overall profitability[47] - The average price of fresh milk in major producing provinces was RMB 3.96 per kilogram, a decrease of approximately 5.7% compared to RMB 4.20 per kilogram in mid-2022[47] - The average price of raw milk decreased by 5.2% to RMB 4.39 per kilogram[52] Research and Development - The company is focusing on expanding its research and development capabilities in intelligent and digital farming technologies to enhance operational efficiency[47] - The company has established a leading research platform focused on dairy cow nutrition and health, enhancing the quality of its dairy products[58] - The company has developed a methane emission prediction model for dairy cows, aiming to reduce methane emissions by 10% below the average level while maintaining high yield and disease resistance[74] Employee and Management - The total number of full-time employees as of June 30, 2023, was 11,653, with technical staff comprising 21.0% and skilled workers making up 44.9% of the total[110] - Total salary expenses (excluding share-based payment expenses and retirement plan contributions) for the reporting period amounted to RMB 775 million, representing a 12.3% increase from RMB 690 million in the mid-2022 period[112] - The company has established partnerships with universities to attract and retain qualified employees, enhancing its talent supply chain[111] Governance and Compliance - The audit committee has reviewed the interim financial statements and discussed accounting policies and internal controls with senior management and auditors[114] - The company has established a nomination committee and a remuneration committee in addition to the audit committee[115] - The company strictly adhered to the standards set forth in the code of conduct for securities transactions by directors during the reporting period[114] Environmental and Social Responsibility - The company aims to peak carbon emissions by 2030 and achieve carbon neutrality by 2050, actively promoting fossil carbon and biological carbon reduction technologies[80] - The company has initiated 7 photovoltaic farm projects, promoting clean energy and reducing carbon emissions in its operations[57] - The company is actively researching carbon reduction technologies in dairy farming, collaborating with various research institutions to develop comprehensive carbon neutrality strategies[58]