YILI(SH:600887) Zhi Tong Cai Jing·2026-02-09 03:07Core Viewpoint - The report from Huayuan Securities indicates a positive outlook for leading dairy companies, expecting them to benefit from the recovery of market share during the rising milk price period and to enhance profitability through leading industry upgrades and entering high-margin deep processing products [1] Supply Side Summary - The supply-demand imbalance has driven low fluctuations in raw milk prices, but there is structural growth potential in per capita dairy consumption. The low milk prices are expected to create a window for industry upgrades, promoting domestic substitution of deep processing products [2] - Milk prices are anticipated to rise, directly benefiting the fundamentals of upstream dairy companies. The price of fresh milk in major production areas has declined for over four years, reaching 3.04 yuan/kg, a 30.6% drop from the 4.38 yuan/kg peak in 2021. The report predicts that the turning point for raw milk prices will arrive in 2026, significantly boosting the performance of upstream dairy companies [2][3] Demand Side Summary - There are structural opportunities in dairy product demand, with domestic substitution in deep processing potentially providing a new growth curve for dairy companies. The per capita dairy consumption in China is projected to be 40.6 kg in 2024, still below the 47 kg target set for 2030. The consumption structure is primarily focused on liquid milk, with a low proportion of dairy solids [3] - The report highlights the potential for growth in low-temperature milk and cheese products, driven by increasing health awareness. The experience from Japan shows that deep processing continues to develop even after liquid milk peaks. Additionally, the regulatory changes by the State Administration for Market Regulation are expected to benefit leading companies by clarifying standards for deep processing products [3] - The Ministry of Commerce's temporary anti-subsidy measures on imported dairy products from the EU, effective from December 2025, will increase import costs, enhancing the price-performance advantage of domestic deep processing products. This policy is expected to accelerate the domestic substitution process for high-value products like cheese and cream, helping to absorb excess raw milk and improve the supply-demand dynamics in the industry [3] Market Share Recovery - The anticipated turning point in milk prices is expected to help leading dairy companies recover market share. The maintenance or improvement of gross margins during the rising milk price period will depend on the actual recovery of market demand. As raw milk prices enter an upward cycle, previously recognized inventory and biological asset impairment losses may be reversed, potentially leading to a short-term recovery in net profit margins [4] - The report notes that many small brands have used low-price strategies to capture market share during the declining milk price period, which has increased sales expenses for leading companies. However, as the surplus of raw milk decreases during the rising price period, the competitive environment is expected to improve, benefiting leading companies in regaining market share [4] Investment Recommendations - The report recommends focusing on upstream farms such as Youran Dairy and China Shengmu, with a suggestion to pay attention to Modern Dairy. For dairy product companies, it recommends Yili Group (600887) and suggests monitoring Mengniu Dairy and New Hope Dairy (002946) [4]