Summary of Conference Call Records Industry Overview - The conference call discusses the **dairy industry** in China, focusing on the **raw milk** segment and its impact on dairy products [1][2][3]. Key Points and Arguments - **Demand and Price Trends**: From 2015 to 2023, the demand for dairy products in China has remained stable or slightly declined, while prices have consistently risen. However, by 2023 and 2024, the industry faces pressure on both volume and price due to a decrease in the youth population, which is the core consumer group [2]. - **Urban-Rural Consumption Disparity**: There are significant differences in per capita dairy consumption between urban and rural areas, as well as between high-tier and lower-tier markets. Northern regions have higher dairy production and consumption compared to the South, where resources are limited [3]. - **Importance of Raw Milk**: Raw milk constitutes about 50% of the production cost in dairy products, making it a critical component of the supply chain. The high level of product homogeneity in dairy products means that fluctuations in raw milk prices directly affect end product pricing [4][5]. - **Impact of Raw Milk Price Decline**: The continuous decline in raw milk prices over the past three years has negatively impacted the profitability of dairy companies. The future trajectory of these prices is crucial for understanding the industry's financial health [6]. - **Raw Milk Cycle Dynamics**: The raw milk cycle is influenced by multiple factors, including the growth cycle of dairy cows, farm profitability, feed costs, and policy subsidies. The current losses in farms may lead to a reduction in cow populations, affecting future supply [7]. - **Demand Side Influence**: Demand upgrades and structural explosions are key to rising milk prices. A shortage in supply can lead to rapid price increases, while an increase in supply may cause prices to decline [8]. - **Effects of Price Decline on Dairy Farms**: During periods of declining milk prices, the capacity reduction in farms is slow as operators expect a price rebound. Despite financial losses reported, cash flow remains stable, indicating a challenging investment environment [9]. - **Impact of Imported Milk Powder**: The domestic raw milk market has seen a decrease in the share of imported milk powder, which has dropped from over 40% a decade ago to around 25% due to price inversions [10][11]. - **Investment Opportunities**: The elasticity of stock prices in the dairy farming sector is greater than that in the dairy product sector. A stabilization or increase in milk prices could significantly benefit the financial statements of dairy farms [12]. - **Profitability Outlook for 2025**: The dairy industry is expected to see improved profitability in 2025, aided by reduced promotional spending and a tightening supply of low-priced milk [13]. - **Key Companies to Watch**: Major companies such as Yili and Mengniu, along with second-tier companies like New Dairy and Tianrun, are highlighted for their growth potential, particularly New Dairy for its focus on low-temperature milk and innovative products [14]. - **Milk Price Trends**: The outlook for milk prices suggests that after a sharp decline, the industry may experience a reduction in competitive pressure, leading to improved profitability. The focus should be on the performance of leading companies rather than immediate cost pressures from rising milk prices [15]. Additional Important Insights - The conference emphasizes the need to monitor the balance between supply and demand closely, as changes in consumer behavior and market dynamics can significantly impact the dairy industry's future [1][8].

Investment Rating - The report gives an investment rating of "Overweight" for the dairy industry, indicating an expectation for the industry to outperform the overall market [65]. Core Insights - The dairy industry is experiencing a cyclical downturn in fresh milk prices, with a potential turning point expected in 2025. The price of fresh milk reached a low of 3.04 yuan/kg in July 2025, following a peak of 4.38 yuan/kg in August 2021. This cycle typically spans approximately eight years [21][30]. - The overall production of dairy products in China has increased from 26.518 million tons in 2014 to 29.618 million tons in 2024, with a compound annual growth rate of 1.11% [32][33]. - The report highlights a trend of consolidation in the dairy supply chain, with larger farms increasingly dominating the market. The number of farms with over 1,000 head of cattle has risen to 12% by 2022 [26][30]. Summary by Sections Dairy Industry Overview - The dairy industry has a long supply chain, including feed, dairy farming, processing, and retail. Major dairy companies are concentrated in regions such as Northwest, North China, and East China, particularly in Inner Mongolia and Zhejiang [3][11][17]. Fresh Milk Price Cycle - The fresh milk price cycle has shown a pattern of peaks and troughs approximately every eight years. The last peak was in February 2014 at 4.27 yuan/kg, followed by a decline that stabilized around 3.4 yuan/kg until 2015. The current cycle began in 2018, peaking in 2021 and declining to 3.04 yuan/kg by July 2025 [21][28][30]. Companies in the Dairy Sector - The report identifies 17 dairy-related companies listed on the New Third Board and the Beijing Stock Exchange. Notable companies include Knight Dairy, Jule Dairy, and Southern Dairy, with Knight Dairy being a listed entity and others in the process of listing [4][35]. - Knight Dairy has shown a steady revenue growth trend, with a revenue of 3.70 billion yuan in Q1 2025, marking a year-on-year increase of 55.88%. However, its net profit has declined by 38.70% [4][39]. - Jule Dairy, known for its "Suanle Milk" product, reported a revenue of 1.641 billion yuan in 2024, a 5.06% increase year-on-year, with a net profit of 232 million yuan, up 18.35% [5][52]. - Southern Dairy, recognized as a key enterprise in Guizhou, achieved a revenue of 1.817 billion yuan in 2024, reflecting a 0.65% growth, with a net profit of 209 million yuan, up 4.36% [6][59].

Summary of the Conference Call for YouRan Dairy (优然牧业) Industry Overview - **Accelerated Culling in Dairy Industry**: Due to rising beef prices, financially pressured farms are accelerating the culling of dairy cows. It is expected that production capacity will clear more rapidly in Q3, although the overall raw milk output will not be significantly affected [2][3]. - **Consumer Recovery Expectations**: The upcoming Mid-Autumn Festival and National Day are anticipated to stimulate consumption, with social raw milk prices already showing an increase, indicating marginal supply-demand improvement. A moderate recovery in milk prices is expected by the end of the year to early next year [2][3]. Company Performance - **Stable Raw Milk Business**: In early July, the decline in raw milk prices narrowed. The company’s unique milk products account for a high proportion, leading to stable gross margins. Raw milk business revenue achieved mid-double-digit growth, outperforming the industry average [2][7]. - **Revenue Growth**: Overall revenue in the first half of the year showed steady growth, primarily driven by the raw milk business. However, the solutions business faced pressure due to the breeding cycle, impacting overall performance [2][8]. - **Gross Margin Improvement**: In the first half of 2025, the gross margin for the raw milk business increased by over 1 percentage point year-on-year, benefiting from a larger decline in feed and sales costs compared to raw milk prices [2][9]. Production and Capacity - **Stable Annual Production**: The company expects its annual raw milk production and sales to remain stable, with over 2 million tons produced in the first half of the year. The full-year target is set at 4 million tons, with a slight single-digit growth in stock expected by year-end [2][12][13]. - **Biological Asset Value Improvement**: The rise in beef prices has increased income from culling cows, reducing fair value fluctuations of biological assets. A positive profit trend is anticipated for the second half of the year, with a decrease in capital expenditures [2][14][15]. Market Trends and Pricing - **Raw Milk Demand and Pricing**: The first half of the year saw a 2% year-on-year decline in dairy product output, indicating weak consumption. However, seasonal factors and holiday consumption are expected to improve trends in the second half [5][6]. - **Collaboration with Yili**: YouRan Dairy is the largest producer of specialty milk in the country, with pricing based on cost-plus and profit contribution, collaborating with Yili to set prices annually. The company expects to increase the proportion of raw milk supplied to Yili to over 40% in 2025 [11][20][21]. Strategic Outlook - **Diversification of Downstream Clients**: YouRan Dairy has a three-year long-term agreement with Yili, ensuring a supply ratio of no less than 70%. The company is also open to expanding its customer base beyond Yili, with existing clients including Guangming and Junlebao [22]. - **Impact of Industry Policies**: Government policies have been supportive of both upstream and downstream sectors, with measures to assist small and medium-sized farms and subsidies for downstream dairy companies [24]. - **Long-term Demand from Deep Processing**: The domestic deep processing capacity for raw milk is expected to significantly enhance demand for raw milk, particularly as the consumption structure shifts from liquid milk to processed products [25]. Financial Considerations - **Capital Expenditure Trends**: Capital expenditures are expected to decrease this year, primarily due to reduced costs associated with new farm constructions and biological asset management [17][18]. - **Profitability and Dividend Plans**: The company will consider dividend distribution based on overall cash flow, prioritizing debt repayment due to high leverage. Shareholder returns will be a focus when appropriate [19]. Competitive Positioning - **Differentiation in Raw Milk Business**: YouRan Dairy's specialty milk accounts for nearly 30% of its raw milk business, significantly higher than competitors. The company offers a diverse range of specialty milk products, maintaining stable pricing and margins [26].

Group 1 - Modern Dairy is a pioneer in large-scale farming and is undergoing a digital transformation to enhance operational resilience through cost reduction and efficiency improvement [1] - The company has shifted its strategic focus from capacity expansion to technology-driven high-quality development, optimizing cost structure and resource utilization [1] - The cyclical nature of raw milk prices is influenced by supply expansion or contraction and the time lag in dairy cow reproduction and lactation [1][2] Group 2 - The supply-demand gap in dairy products is expected to narrow, with raw milk prices likely to stabilize and recover in mid to late 2025 [2] - Modern Dairy's core business is raw milk, which is projected to generate revenue of 10.454 billion yuan in 2024, accounting for 78.83% of total revenue [2] - The company has enhanced its vertical integration by launching feed and digital platform businesses to improve synergy within the industry chain [2] Group 3 - The productivity of dairy cows is improving, with an expected yield of 12.8 tons per head per year in 2024 [3] - Modern Dairy has strategically acquired FuYuan Dairy and ZhongYuan Dairy to achieve scale integration and diversify its operations across breeding, feed, deep processing, and digital platforms [3] - The company operates 47 dairy farms in China with over 490,000 dairy cows, focusing on core dairy farming regions, and has established quality forage bases in the U.S. [3] Group 4 - The tightening supply-demand gap in raw milk is expected to create investment opportunities, with profitability improvements anticipated in the second half of 2025 [3] - The company's projected EPS for 2025 and 2026 are 0.01 yuan and 0.10 yuan, respectively, with corresponding PE valuations of approximately 73 and 11 times, indicating significant upside potential [3]

Investment Rating - The report gives a "Buy" rating for the company, marking its first coverage [9][11]. Core Insights - Modern Dairy is a pioneer in large-scale farming, with digital transformation and refined operations driving cost reduction and resilience. The company is positioned as a leader in China's raw milk production and full industry chain operations, with a clear trend of tightening raw milk supply and demand gap, suggesting potential profitability improvement by the second half of 2025 [3][6][9]. Summary by Sections Company Overview - Modern Dairy, established in 2005 and listed on the Hong Kong Stock Exchange in 2010, is headquartered in Ma'anshan, Anhui Province. The company aims to be a global leader in the dairy industry through a strategy focused on industry chain layout, digital innovation, and collaboration with strategic partner Mengniu [6][17]. Market Dynamics - The report discusses the cyclical nature of raw milk prices, indicating that prices may stabilize and improve by mid to late 2025 due to a combination of steady demand and accelerated capacity reduction in the upstream dairy sector [7][9]. Business Performance - In 2024, the company's raw milk business generated revenue of 10.454 billion yuan, accounting for 78.83% of total revenue. The company has also expanded into feed and digital platform businesses to enhance vertical synergy within the industry chain [8][54]. Financial Metrics - Modern Dairy's EBITDA for 2024 reached 2.986 billion yuan, a year-on-year increase of 19.6%. The company reported a total revenue of 13.254 billion yuan, a slight decrease of 1.52% year-on-year, with a net profit attributable to shareholders of -1.417 billion yuan [18][61]. Growth Strategy - The company has focused on high-quality development driven by technology, optimizing cost structures, and improving resource utilization efficiency. This strategic shift aims to consolidate its leading position in the industry amid increasing market concentration [30][37]. Future Outlook - The report anticipates that the tightening supply-demand gap in raw milk will create investment opportunities, with significant upside potential in the company's earnings and valuation expected in 2025 and 2026 [9][61].

Summary of the Conference Call for Yuran Dairy Industry Industry Overview - The dairy industry is expected to see a moderate recovery in milk prices in 2025, influenced by summer heat stress, mid-to-high-end dairy product consumption, and new national standards [2][3][4] - The original milk price is projected to stabilize in Q3 2025 and rise in Q4 2025, supported by cash flow pressures faced by social pastures during the silage procurement season [2][10] Key Points Milk Price Expectations - Milk prices are anticipated to rise to around 3.8 RMB/kg, with fluctuations expected to be moderate rather than drastic [4][22] - The average milk price for 2024 was 4.12 RMB/kg, with a sales cost of 2.77 RMB/kg, where feed costs accounted for approximately 70%-75% of total costs [2][21] Company Strategy and Performance - Yuran Dairy aims for a low single-digit growth in the number of dairy cows in 2025, with production and sales expected to exceed 4 million tons [2][5] - The company’s fresh milk pricing is above the market average, with a 2024 average of 4.12 RMB/kg compared to the national average of 3.32 RMB/kg [2][6] - The company plans to maintain a stable gross margin in 2025, benefiting from a recovery in beef prices which will reduce losses from culling [5][21] Supply and Demand Dynamics - The culling of dairy cows is accelerating due to rising beef prices, which are nearing 20 RMB/kg, alleviating cash flow pressures on pastures [2][9] - The number of dairy cows in China has been decreasing, with a monthly reduction of approximately 35,000 to 40,000 heads from January to April 2025, slowing to 10,000 heads in May [3][4] Cost and Profit Analysis - A change of 0.1 RMB/kg in milk price or cost is expected to impact annual net profit by approximately 400 million RMB [3][21] - The company’s average sales ratio remains stable at 97%-98%, with no sales pressure due to unlimited purchases from downstream clients [12] Market Trends and Consumer Behavior - There is a structural change in demand, with a shift from room temperature milk to low-temperature milk and an increase in the high-end segment of infant formula and elderly milk powder [10][11] - The company is exploring international markets, including Hong Kong and Southeast Asia, to expand its customer base [11] Future Outlook - The dairy industry is expected to stabilize and see a gradual recovery in milk prices, indicating that the most challenging period may be nearing its end [20][22] - The company is focusing on enhancing operational efficiency and maintaining a balanced supply-demand relationship to navigate future market fluctuations [22][29] Additional Insights - The company has expanded its product line to include goat milk, which is gaining popularity due to its digestibility [25] - The breeding business is progressing well, with a focus on improving the quality of dairy cows through advanced breeding techniques [26] This summary encapsulates the key insights and projections discussed during the conference call, highlighting the strategic direction and market dynamics of Yuran Dairy Industry.