Investment Rating - The industry investment rating is "Positive" (maintained) [1] Core Viewpoints - The value of layout in the high-end liquor sector is becoming evident, and the optimization of raw milk supply and demand is creating investment opportunities [3][12] - The food and beverage index experienced a decline of 0.6% from December 22 to December 26, ranking 25th among 28 sectors, underperforming the CSI 300 by approximately 2.5 percentage points [12][14] - The high-end liquor industry is currently in a deep adjustment period due to slowing economic growth and insufficient consumer confidence, but there are signs of demand improvement compared to the second and third quarters [12] - The price strategy for premium liquor brands like Moutai is stabilizing, with recent prices in the range of 1500-1600 RMB, and significant price drops are not expected in the near future [12] - The raw milk supply-demand gap has slightly narrowed, with a short-term recovery in demand due to pre-holiday stocking, but long-term supply remains in surplus [4][13] Summary by Sections Weekly Insights - The liquor sector shows layout value, and the raw milk supply-demand optimization is generating investment opportunities [3][12] - The food and beverage index underperformed the market, with specific sub-sectors like health products and other foods showing relative strength [12][14] Market Performance - The food and beverage index fell by 0.6%, ranking 25th out of 28 sectors, with health products (+0.5%) and other foods (+0.0%) performing relatively better [12][14] Upstream Data - Recent data indicates a decline in some upstream raw material prices, with full-fat milk powder auction prices down 18.7% year-on-year [20][21] Liquor Industry News - Prices for premium Moutai products have increased, reflecting strong market demand and limited supply [42] Recommended Portfolio - Recommended stocks include Guizhou Moutai, Shanxi Fenjiu, and West Oat Foods, among others, focusing on companies with strong performance stability and risk resilience [5][48]

Summary of the Conference Call for YouRan Dairy Industry Overview - The dairy industry is experiencing a trend of culling, with approximately 270,000 to 280,000 cows eliminated in 2025, which is below expectations. However, the culling rate accelerated in October, indicating a consistent trend in the industry [2][3] - The upcoming demand peaks during the New Year and Spring Festival are expected to maintain high raw milk prices, potentially leading to a shortage of raw materials for downstream companies [2][3] - The industry is projected to reach a balance by mid-2026, with the supply-demand dynamics expected to align with market expectations [2][4] Key Points on Pricing and Demand - After the Spring Festival, raw milk prices are anticipated to rise slightly due to a shortage of milk in January, which could persist until March [2][5] - The culling of 27,000 cows in October reflects cash flow issues that previously hindered the expected culling rate [2][5] - The pricing mechanism of the company is linked to the average prices of the top five suppliers in the region, which will adjust in line with market trends during industry recovery [6][7] Policy and Market Dynamics - Recent government policies, including anti-subsidy investigations, are expected to limit imports of dairy products, accelerating domestic replacements and benefiting the domestic dairy industry [7] - The domestic raw material cost advantage is significant, encouraging downstream companies to invest in both deep processing and rough processing [8] Production and Cost Management - The cost of feed for milk production decreased to 1.91 RMB per kilogram in the first half of 2025, a significant year-on-year decline. This trend is expected to continue into the second half of 2025 and 2026 [10] - The company has optimized its herd structure, focusing on high-yield, long-lifespan cows, with expectations of maintaining or slightly increasing the herd size by the end of 2025 [11] Financial Performance and Projections - The fair value of biological assets showed a loss of 2.23 billion RMB in the first half of 2025, but this is expected to improve in the second half due to rising culling prices [12] - The gross margin for raw milk is projected to increase slightly in 2026, influenced by feed costs and market conditions [14] Strategic Outlook - The company is considering potential mergers and acquisitions to expand its scale, particularly during industry downturns when asset prices are lower [16] - Financial leverage and debt ratios are expected to improve as the company reduces its financing scale and capital expenditures [17] - Plans for shareholder returns will be evaluated in light of industry recovery and improved cash flow, with potential dividends being considered [18] Conclusion - The dairy industry is navigating through a transitional phase with significant culling, pricing adjustments, and policy impacts. The company is strategically positioned to leverage these changes for future growth and stability in profitability.

Core Viewpoint - The report from Guoyuan International indicates that with the gradual stabilization of domestic dairy product demand and the implementation of countervailing measures, there is an expected increase in the demand for raw milk, suggesting a potential investment opportunity in Youran Dairy (09858) [1] Group 1: Countervailing Measures - The Ministry of Commerce of China announced a preliminary ruling on December 22, 2024, to implement temporary countervailing duties on dairy products imported from the EU starting December 23, 2025 [2] - The countervailing investigation began in July 2024, initiated by the China Dairy Industry Association and the China Dairy Products Industry Association, citing substantial damage to the domestic industry due to EU subsidies [2] - The preliminary evidence indicates that the EU provided significant subsidies to its dairy sector, leading to a causal relationship with the damage to the Chinese domestic industry, resulting in a countervailing duty range of 21.9%-42.7% on various dairy products [2] Group 2: Impact on Supply and Demand - The implementation of countervailing measures is expected to increase import prices, which may help restore the balance between supply and demand for raw milk in China [2] - In the first ten months of 2025, China imported 2.1824 million tons of various dairy products, with cheese, cream, and sour cream accounting for 156,000 tons, 118,100 tons, and 214,500 tons respectively, with the EU being a significant supplier [2] - The countervailing measures are anticipated to weaken the price advantage of imported dairy products, potentially reducing overseas supply and promoting a return to supply-demand equilibrium in the domestic raw milk industry [2]

Summary of Youran Dairy (9858.HK) Conference Call Company Overview - **Youran Dairy** is a leading player in the dairy industry, recognized as the largest raw milk provider globally in terms of dairy cow herd size and production volume as of 2020. The company was spun off from Yili and went public in Hong Kong in June 2021 [28][29]. Industry Context - **EU Dairy Product Tariff**: China has imposed provisional duties of 21.9-42.7% on certain EU dairy products, effective December 23, 2025. This primarily affects cheese and whipping cream, which constitute 20.7% of EU's market share in China [1][2]. - **Impact on Imports**: The EU accounted for 28.3% of China's dairy product imports in the first ten months of 2025, with cheese and whipping cream making up 9.1% and 1.6% of imports by raw milk equivalent volume [2][11]. Key Insights - **Raw Milk Oversupply**: China's raw milk supply has seen a surplus of 1-2 million tons in 2025, down from 3-4 million tons in 2024. The targeted EU dairy products import is estimated to be equivalent to ~0.8 million tons of raw milk, which could be replaced by domestic production, thus alleviating oversupply [3][17]. - **Domestic Demand for Solid Dairy Products**: The demand for deep-processed solid dairy products like whey, cheese, and butter has been growing, driven by high-end bakery and catering sectors. In 2024, China imported about 1 million tons of these products, with continued growth observed in 2025 [4][17]. - **Youran's Customer Development**: Youran's major customer, Yili, has established a solid dairy product production line with a daily capacity of 600 tons, which could substitute 15% of raw milk equivalent import volume at full utilization [4]. Financial Performance - **Earnings Summary**: - 2023: Net Profit -739 million RMB, Diluted EPS -0.195 RMB - 2024: Net Profit -691 million RMB, Diluted EPS -0.180 RMB - 2025E: Net Profit 541 million RMB, Diluted EPS 0.141 RMB (growth of 178.2%) [5][10]. - **Valuation Metrics**: - P/E ratio for 2025E is projected at 30.6, with a P/B ratio of 1.4 and ROE of 4.7% [5][10]. Market Outlook - **Target Price and Return**: The target price for Youran Dairy is set at HK$5.40, indicating an expected share price return of 13.2% [6][10]. - **Market Capitalization**: Youran Dairy's market cap is approximately HK$18.568 billion (US$2.387 billion) [6][10]. Risks and Considerations - **Key Risks**: Potential risks include lower-than-expected raw milk prices, reliance on the business performance of key customers, disease outbreaks at dairy farms, trade frictions affecting forage imports, and food safety issues [31]. Conclusion - Youran Dairy is positioned to benefit from the structural changes in the dairy market due to the EU tariff, which may enhance domestic raw milk demand. The company's strategic developments in solid dairy products and its strong market position suggest a positive outlook for future growth.

Livestock Sector - The pig farming industry is entering a "new cost competition pattern," with overall micro-profitability expected in 2025, and leading companies becoming stronger [1] - The production capacity of breeding sows is at a reasonable high level, with policy guidance aimed at reduction, leading to weaker price fluctuations [1] - Key companies to focus on include Muyuan Foods (牧原股份), Wens Foodstuff Group (温氏股份), and Lihua Agricultural (立华股份) [1] Beef Cattle Industry - The beef cattle industry is experiencing a deep supply clearance, similar to the pig industry before 2019, with significant risks of overcapacity due to prolonged losses [2] - In November 2024, the loss per head reached over 1,600 yuan, marking eight consecutive months of losses exceeding 1,000 yuan, prompting accelerated culling of breeding cows [2] - The cow production cycle (PSY) is only 1, significantly lower than the breeding sow PSY of 30, indicating a substantial reduction in beef supply expected by 2026 [2] - Recommended stocks include Youran Dairy (优然牧业) and Fucheng Group (福成股份) [2] Edible Mushroom Industry - The industry is seeing a rational return of production capacity, with leading companies solidifying their market positions [3] - The artificial cultivation of Cordyceps is entering a performance release phase, opening a second growth curve [3] - Traditional products like enoki mushrooms are experiencing alleviated overcapacity, with stable CR5 [3]

Group 1: Livestock Industry - The pig industry is currently in a phase of deep losses, with supply contraction expected to continue into the first half of 2026, leading to a significant reduction in production capacity. The average pig price for 2025 is projected to be below the cost line, with quarterly estimates of 15.5 CNY/kg, 13.5 CNY/kg, 16.4 CNY/kg, and 17.7 CNY/kg, resulting in an annual average of approximately 13.4 CNY/kg [11][25][26] - The white chicken market is experiencing a cautious outlook, with a projected supply growth of less than 5% for 2026. The decline in the sales of commodity broiler chicks indicates a more conservative price expectation within the industry [30][35] - The yellow chicken sector remains stable, with production capacity not significantly affected. The prices are expected to follow trends in other protein sources, with a focus on seasonal price increases [39] - The beef market is anticipated to see a price increase due to a clear reduction in both domestic and international supply. The wholesale price of beef has been rising, reaching 66.21 CNY/kg in December, reflecting a year-on-year increase of 9.1% [42][70] Group 2: Agricultural Inputs and Other Sectors - The feed industry is showing signs of recovery, with a 6.6% year-on-year increase in feed production for the first three quarters of 2025, indicating improved demand from the livestock sector [71][76] - The edible mushroom sector is witnessing a rebound, particularly with the reversal of the predicament faced by enoki mushrooms and the potential growth of new products like Cordyceps [3][80] - The pet industry continues to thrive, with a notable trend towards high-end domestic products, as evidenced by the performance of brands like Guibao Pet and Zhongchong Co. [4][63] - The natural sweetener market is expected to grow as consumer awareness of sugar reduction increases, with companies like Bailong Chuangyuan and Baolingbao positioned to benefit from this trend [4][71]

Core Viewpoint - Different consumer sectors exhibit both differences and commonalities in recovery rhythms, with ROA being a leading indicator for operational recovery in consumer enterprises [1][2] Group 1: Recovery Rhythm Analysis - The recovery rhythm of various consumer sectors is influenced by industry supply and demand, as well as supply chain structures, with a focus on stock market competition as a mainstream phenomenon [2] - The stages of enterprise and channel adjustments are outlined, starting from oversupply to a new balance in supply and demand, with ROA serving as a key indicator throughout these stages [2] - Current recovery sequences indicate that soft drinks and snacks are leading, followed by food supply chains, condiments, dairy products, beer, and finally, liquor [2][3] Group 2: Investment Strategy - Emphasis on sectors where ROA stabilizes, indicating potential valuation recovery opportunities, with a preference for sectors that still show price or volume growth [3] - Price logic suggests that rising CPI may drive valuation recovery in traditional industries with high penetration rates, such as liquor, beer, and dairy products, which are likely to attract incremental capital [3][4] - Recommended companies in the liquor sector include Kweichow Moutai, Luzhou Laojiao, and Shanxi Fenjiu, while in dairy, focus on Yili and Mengniu [3] Group 3: Volume Logic - In the context of cost-effective consumption, companies with high supply chain efficiency are expected to gain volume, with specific recommendations for companies in the food supply chain and soft drinks [4] - Industries with low penetration rates may withstand economic cycles, with recommendations for low-alcohol beverages and functional foods that can enhance brand premium through specialization [4] - Companies benefiting from overseas market expansion include Angel Yeast and Bailong Chuangyuan [4]

Group 1: Core Insights - The report emphasizes the recovery stage of consumer spending, highlighting that different sectors exhibit both commonalities and differences in their recovery rhythms, driven by supply-demand dynamics and industry structure [4][5] - ROA (Return on Assets) is identified as a leading indicator for the operational recovery of consumer companies, with a focus on analyzing various sub-sectors [4][13] Group 2: Sector Performance - The current recovery sequence indicates that soft drinks and snacks are leading, followed by the catering supply chain, condiments, dairy products, beer, and finally, liquor [5][25] - The report draws parallels with Japan's 1990s consumption differentiation, noting that sectors addressing consumer pain points and with low penetration rates are likely to succeed [5][6] Group 3: Investment Strategy - The report suggests focusing on sectors where ROA is stabilizing, indicating potential valuation recovery opportunities, particularly in traditional sectors like liquor, beer, and dairy [6][8] - It recommends identifying sub-sectors with either price or volume growth, with a preference for price-driven strategies [6][8] Group 4: Detailed Sector Analysis - The frozen food sector is showing signs of marginal improvement, with leading companies enhancing operational efficiency through product innovation and channel reforms [27][28] - The snack sector is experiencing high demand, driven by new channel developments, although competition is intensifying [33][35] - The beer industry is under pressure, with a focus on high-end products, but overall growth is slowing due to external economic factors [39][41] - The dairy sector is nearing the end of its adjustment phase, with expectations of improved performance as raw milk prices rise [41][42] - The liquor sector is currently in a phase of inventory reduction, with performance risks gradually clearing as channels stabilize [43][48]

Core Viewpoint - The Ministry of Commerce has announced a preliminary ruling on anti-subsidy investigations against EU dairy imports, implementing temporary anti-subsidy deposit measures starting December 23, 2025, which could accelerate domestic dairy product processing and promote local alternatives [1][2]. Group 1: Anti-subsidy Measures - The Ministry of Commerce decided to impose temporary anti-subsidy tax deposits on EU dairy products, with rates ranging from 21.9% to 42.7%, generally close to 30% [1]. - The investigation found that EU dairy products have received subsidies that harm the domestic dairy industry [1]. Group 2: Impact on Domestic Market - The anti-subsidy tax is expected to increase import prices, thereby accelerating the shift towards domestic dairy product processing [2]. - The current domestic milk prices are lower than international prices, which may further enhance the competitiveness of local products [2]. Group 3: Demand and Supply Dynamics - The deep processing of dairy products is anticipated to increase the consumption of raw milk, improving the supply-demand balance in the upstream raw milk industry [3]. - Domestic milk prices have stabilized since August, driven by supply adjustments from social pastures and increased demand from expanding consumption scenarios such as milk tea [3]. Group 4: Investment Opportunities - Companies benefiting from the deep processing business include Miaokelando (600882.SH), Yili (600887.SH), Mengniu Dairy (02319), and Lihigh Food (300973.SZ) [4]. - Upstream livestock companies that may benefit include Youran Dairy (09858), Modern Dairy (01117), and China Shengmu (01432) [4].

Core Viewpoint - The Ministry of Commerce has announced a countervailing policy against EU imported dairy products, specifically targeting cheese and high-fat cream, which are core categories in deep processing of dairy products. This policy is set to enhance the price advantage of domestic manufacturers and is expected to have a rapid market impact [1][2][3]. Summary by Sections Policy Announcement - The Ministry of Commerce has issued a preliminary ruling on countervailing investigations against EU dairy imports, confirming that these products are subsidized and have caused substantial harm to the domestic industry. Starting December 23, 2025, temporary countervailing measures will be implemented, requiring importers to provide a deposit of 21.9% to 42.7% based on the value of the goods [2]. Characteristics of the Policy - The ruling specifically targets cheese and high-fat cream, which are heavily reliant on imports, with over 50% of high-fat cream being imported. The measures impose a significant cost increase on EU products, with an average subsidy rate close to 30%. The policy takes effect immediately, demonstrating the government's commitment to market stability [3]. Market Impact - The countervailing policy is expected to accelerate domestic substitution in the deep processing sector, potentially freeing up a market space of 20 billion for cream and 14 billion for cheese. Historically, China's dairy processing industry has been heavily reliant on imports due to high raw milk costs and immature technology, with domestic products only accounting for 14%-18% of the market in 2023. The policy is anticipated to enhance the price advantage of domestic manufacturers, particularly benefiting those in high-fat cream production [4]. Investment Opportunities - The report suggests three categories of investment opportunities: - Domestic substitution beneficiaries: Recommended stocks include Lihigh Foods (300973.SZ) and Miaokelando (600882.SH), with Lihigh being the largest domestic cream producer and poised to benefit from price increases in imported brands [5]. - Dairy price reversal benefiting upstream farms: Companies like Youran Dairy (09858) and Modern Dairy (01117) are highlighted, as they are expected to show resilience and potential profit recovery with the reversal of raw milk prices [5]. - Strengthening competitiveness of leading dairy companies: Recommendations include Yili (600887.SH) and Mengniu Dairy (02319), which are expected to benefit from stabilized milk prices and accelerated deep processing business, enhancing their long-term growth potential [5].