Investment Rating - The report assigns a "Buy" rating for the company, YuRan Dairy [5] Core Insights - The company is positioned as a leading player in China's dairy industry, with both a strong market position and undervalued stock, benefiting from the upward cycle of beef cattle and the reversal of raw milk prices, which is expected to lead to high returns from cattle disposal and significant growth in raw milk production [1][2] - The raw milk price is nearing a turning point, with a projected decline in dairy cow inventory by 8% from the end of 2023 to October 2025, which is expected to support a moderate increase in milk prices [1] - The company has established the largest modern dairy farm network in China, operating 100 farms across 17 provinces, with a dairy cow inventory of 620,000 heads and a raw milk production of 2.08 million tons in the first half of 2025, leading the industry [1][18] Summary by Sections 1. Company Overview - YuRan Dairy is a leader in the upstream dairy market, covering the entire industry chain from breeding to raw milk production, and is committed to high-quality development and sustainable practices [17] - The company has a stable shareholding structure, with a significant stake held by Yili Group, which also serves as a core customer, ensuring a deep business relationship [22] 2. Beef Cattle Market - The beef cattle market is expected to experience a structural shortage due to a decline in breeding cows, which will support long-term price increases [2][47] - The company is projected to benefit from the rising prices of calves and breeding cattle, with expected revenue growth from cattle disposal of 72% in 2025 [2] 3. Raw Milk Market - The raw milk business is expected to see significant growth, with sales projected to exceed 4 million tons by 2025, benefiting from cost reductions and efficiency improvements [1][3] - The company has a strong sales relationship with Yili, with 94.8% of its raw milk sales going to Yili at a price significantly higher than the industry average [1] 4. Financial Projections - Revenue is expected to grow from 200.96 billion yuan in 2024 to 258.98 billion yuan in 2027, with net profit projected to increase from a loss of 691 million yuan in 2024 to a profit of 4.01 billion yuan in 2027 [11][9] - The company’s price-to-earnings ratio is projected to decrease significantly, indicating a potential for valuation improvement [9] 5. Market Dynamics - The report highlights the cyclical nature of the dairy and beef markets, with a turning point expected in the raw milk cycle and a long-term upward trend in beef prices due to structural supply issues [1][68] - The company is well-positioned to capitalize on these market dynamics, with a robust operational framework and strategic partnerships [1][4]

Investment Rating - The report assigns a "Buy" rating for the company, YuRan Dairy [5] Core Insights - The company is positioned as a leading player in China's dairy industry, with both a strong market position and undervalued stock, benefiting from the upward cycle of beef cattle and the reversal of raw milk prices, which is expected to lead to high returns from cattle disposal and significant growth in raw milk production [1][2] - The raw milk price is nearing a turning point, with current prices at the bottom of the cycle, and a projected decline in dairy cow inventory by 8% by October 2025 compared to the end of 2023, which will support a moderate increase in milk prices [1] - The company has established the largest modern dairy farm network in China, operating 100 farms across 17 provinces, with a dairy cow inventory of 620,000 heads and a raw milk production of 2.08 million tons in the first half of 2025, ranking first in the country [1][18] Summary by Sections 1. Company Overview - YuRan Dairy is a leader in the upstream dairy market in China, covering the entire industry chain from breeding to raw milk production, and is committed to high-quality development and sustainable practices [17] - The company has a stable shareholding structure, with Yili Group as the largest shareholder, holding 33.93% of the shares, which strengthens the business relationship and sales advantages [22] 2. Beef Cattle Market - The beef cattle market is expected to experience a structural shortage, supporting long-term price increases due to a significant reduction in inventory and a weak replenishment of breeding cows [2][38] - The company is projected to benefit from the rising prices of calves and breeding cattle, with expected revenue growth from cattle disposal of 72% in 2025, 25% in 2026, and 34% in 2027 [2] 3. Raw Milk Market - The raw milk business is expected to have high growth elasticity, with a projected sales volume exceeding 4 million tons by 2025, benefiting from cost reduction and efficiency improvements [1][3] - The company’s raw milk sales to Yili accounted for 94.8% of its total raw milk revenue, with a selling price of 3.87 yuan/kg, which is 25.6% higher than the industry average [1] 4. Financial Projections - The company’s revenue is expected to grow steadily, with projected revenues of 215.89 billion yuan in 2025, 234.86 billion yuan in 2026, and 258.98 billion yuan in 2027, reflecting growth rates of 7.43%, 8.78%, and 10.27% respectively [9] - The net profit is projected to recover significantly, with estimates of 9.71 billion yuan in 2025, 20.37 billion yuan in 2026, and 40.10 billion yuan in 2027, corresponding to growth rates of 240.60%, 109.67%, and 96.88% respectively [9][11]

Investment Rating - The report rates the dairy industry as "Overweight" compared to the market, indicating a positive outlook for investment opportunities in this sector [2]. Core Insights - The report highlights that Yili Co., Ltd. is expected to benefit from domestic substitution in the dairy industry and opportunities for product diversification [2]. - The current dairy price downcycle has lasted for nearly three years, driven by rigid supply and weak demand, but several positive signals suggest an impending turning point [18][32]. - The B-end market for dairy products is growing rapidly, with a compound annual growth rate (CAGR) of 14.9% from 2021 to 2024, significantly outpacing the C-end market, which is experiencing a decline [38]. Summary by Sections Dairy Price Cycle - The current downcycle in raw milk prices has persisted for 49 months, with a decline of 30.6% since September 2021 [7][9]. - The average milk yield per cow has been on an upward trend since 2018, with the scale of dairy farming expected to reach 78% by 2024 [8]. Supply and Demand Dynamics - The supply side remains rigid due to high barriers for large-scale farms to exit, while demand has been weak, leading to a prolonged price downcycle [9][18]. - Dairy companies are reducing purchases of raw milk to manage inventory, further pressuring raw milk prices [19]. B-end Market Opportunities - The B-end market for dairy products is characterized by a low current share but high growth potential, particularly in fresh milk, which is expected to dominate B-end consumption [34][38]. - Domestic dairy companies are increasingly focusing on the B-end market through partnerships and product innovations to capture market share from imported brands [39][40]. C-end Market Diversification - The liquid milk segment is stabilizing, with flavored milk beverages gaining market share, while low-temperature fresh milk is experiencing volume growth despite price pressures [51][52]. - The cheese market is facing challenges, with a projected decline in retail volume and per capita consumption from 2022 to 2024, but there is a push towards original cheese production to meet health trends [56][63]. Financial Performance and Competitive Position - Yili Co., Ltd. has maintained a strong competitive position with a higher gross margin compared to its peers, benefiting from a diversified product portfolio and effective distribution strategies [64][71]. - The company's sales expense ratio has decreased significantly, enhancing its profitability relative to competitors [71].

Core Viewpoint - The report from Guotou Securities emphasizes the importance of consumption in economic growth, predicting a stabilization in the consumption fundamentals in 2026, which presents a significant opportunity for investment in the food and beverage industry [1] Group 1: Alcohol Industry - The liquor sector is at a cyclical bottom, with low expectations, low holdings, and low valuations, suggesting potential for left-side layout opportunities [2] - The rapid clearing of financial reports in the past two quarters indicates a resolution of supply-demand conflicts, with a gradual recovery in household consumption expected [2] - The white liquor business model remains strong, and with a potential economic recovery, valuations are likely to rebound quickly [2] Group 2: Beer Industry - The beer sector is expected to maintain a structural market in 2026, with investment opportunities in companies with strong single-product growth logic and those benefiting from competitor adjustments [3] - Overall profitability in the beer sector is on an upward trend, driven by the expansion of products priced between 8-10 yuan and improved efficiency from lean management [3] Group 3: Dairy Industry - The dairy sector is positioned for a turnaround in the raw milk cycle in 2026, with a focus on the profitability elasticity of the dairy supply chain [4] - Demand for dairy products has shown differentiation, with low-temperature fresh milk and cheese experiencing healthy growth, while room temperature liquid milk has been a drag [4] - The average milk price in major production areas is expected to recover above the average cost of production in 2026, making it an opportune time to invest in the dairy supply chain [4] Group 4: Soft Drink Industry - The soft drink sector has seen significant performance differentiation, with companies in strong growth categories leading the industry [5] - In 2026, there is a focus on functional beverages and the competitive landscape of packaged water, with an emphasis on companies introducing new products [5] - The demand for low-sugar functional beverages is anticipated to grow, particularly among white-collar workers seeking fatigue-relief options [5] Group 5: Snack Industry - The snack sector is benefiting from strong new channel drivers, with expectations of improved gross and net profit margins due to scale effects [6] - The konjac product category is maintaining high market interest, with significant growth potential in China [6] - Investment recommendations include focusing on companies with strong performance during the adjustment period and those with leading products in the snack sector [6]

Core Insights - The report emphasizes a cautious yet optimistic outlook for the food and beverage sector, suggesting that the economic cycle and drinking policies will stabilize, leading to potential recovery in valuations, particularly in the liquor segment [1][12] - The investment strategy focuses on identifying companies with strong performance resilience and growth potential across various sub-sectors, including liquor, beer, dairy, soft drinks, and snacks [12] Group 1: Liquor Industry - The liquor sector is currently experiencing a bottoming out phase, with low expectations, low holdings, and low valuations. The report suggests that the supply-demand imbalance is easing, and consumer spending is expected to gradually recover, making it a good time to invest in leading brands like Moutai and Wuliangye [1][27] - In Q3 2025, the liquor industry saw a revenue and profit decline of around 20%, with high-end and regional liquor experiencing significant drops in growth rates. The report indicates that the industry is in an adjustment phase, with companies becoming more pragmatic in their growth targets [27][39] - The report highlights a trend towards premiumization, with consumers increasingly favoring well-known brands and products, leading to a concentration of market share among top players [53][58] Group 2: Beer Industry - The beer sector is expected to maintain a structural growth trend, particularly for companies with strong single-product growth logic. The profitability of beer companies is on an upward trajectory, driven by the expansion of products priced between 8-10 yuan and improved operational efficiency [2] Group 3: Dairy Industry - The dairy sector is poised for a turnaround in the raw milk cycle in 2026, with expectations of recovering demand for raw milk as deep processing capacities come online. The report recommends investing in the dairy supply chain, as average milk prices are projected to rise above production costs [3][6] Group 4: Soft Drinks Industry - The soft drink sector is advised to focus on high-growth categories and capitalize on changes in competitive dynamics within the market. The report notes that functional beverages, particularly low-sugar options, are expected to gain traction, catering to the needs of health-conscious consumers [4] Group 5: Snack Industry - The snack segment is benefiting from new channel dynamics, with significant growth potential in bulk snack sales. The report highlights the strong performance of companies like Wancheng Group and suggests that products like konjac snacks have substantial market growth opportunities [5][20]

Group 1 - The national implementation of the childcare subsidy program is a groundbreaking policy aimed at directly providing cash subsidies to families with children under three years old, starting from January 1, 2025, with an annual subsidy of 3,600 yuan per child [1][2] - The subsidy program is expected to benefit over 20 million families annually, potentially stimulating birth rates, especially in lower-tier cities, where the impact of the subsidy may be more pronounced [2][3] - The recent changes in the dairy industry, including the development of deep processing products and exploration of export potential, are expected to create new demand dynamics for the infant formula sector [3][4] Group 2 - The demand for infant formula is anticipated to improve due to the stimulus from the new policy and the expected population growth driven by the 2024 zodiac preferences, leading to a potential recovery in demand by 2025 [3][4] - The overall dairy industry is likely to benefit from the positive trends in population issues and the recovery of the raw milk cycle, which will enhance profitability across the entire industry chain [4] - Recommended companies include China Feihe, H&H International Holdings, Yili, and Mengniu Dairy, which are expected to benefit from the improving market conditions and the recovery of raw milk prices [4]

Investment Rating - The report maintains a "Recommendation" rating for Tianrun Dairy (600419) [2][8] Core Views - The demand remains weak, impacting profitability due to impairment losses. In Q1 2025, total revenue was CNY 625 million, down 2.5% year-on-year, with a net profit attributable to shareholders of -CNY 73 million compared to CNY 5 million in the same period last year [2][8] - The company is actively adjusting to pressures, with expectations for gradual improvement in operations throughout the year. The report anticipates that the reduction in cattle and the introduction of new products will help stabilize revenue and improve profitability [2][8] Financial Summary - **Revenue and Profit Forecasts**: - Total revenue is projected to grow from CNY 2,804 million in 2024 to CNY 3,327 million in 2027, with year-on-year growth rates of 3.3%, 5.2%, 6.4%, and 6.0% respectively [4] - Net profit is expected to recover from CNY 44 million in 2024 to CNY 204 million in 2027, with significant growth rates of -69.3%, 94.2%, 100.6%, and 20.0% [4] - **Earnings Per Share (EPS)**: - EPS is forecasted to increase from CNY 0.14 in 2024 to CNY 0.64 in 2027, reflecting the company's recovery strategy [4] - **Valuation Ratios**: - The price-to-earnings (P/E) ratio is projected to decrease from 72 in 2024 to 15 in 2027, indicating an improving valuation as earnings recover [4] Sales Performance - In Q1 2025, the sales revenue from various product lines showed a decline, with revenue from ambient products at CNY 347 million, down 4.37%, and low-temperature products at CNY 239 million, down 0.64% [8] - The company experienced a 12.37% increase in dairy product sales volume year-on-year, attributed to promotional activities in the Xinjiang region [8] Strategic Adjustments - The company is focusing on reducing cattle numbers and introducing new products to adapt to market pressures. New product launches include passion fruit milk beer and baked milk skin, aimed at diversifying revenue streams [8] - The report highlights the importance of monitoring the raw milk price cycle and the potential impact of consumer stimulus policies on future performance [8]

Investment Rating - The investment rating for the company is "Buy" [1][7] Core Views - The company achieved a revenue of 20.1 billion yuan in FY24, representing a year-on-year increase of 7.5%, with a shareholder loss of 0.691 billion yuan, an improvement from a loss of 1.050 billion yuan in the same period last year [2] - The raw milk business showed strong growth, while the ruminant animal breeding solutions business faced challenges, with revenues of 15.1 billion yuan and 5 billion yuan respectively for FY24, reflecting year-on-year changes of +17.0% and -13.7% [3] - The company’s cash EBITDA for FY24 reached 5.32 billion yuan, a significant increase of 38.3% year-on-year, indicating strong operational performance despite accounting losses from biological asset impairments [4] - The raw milk price is expected to enter a reversal cycle, with the company positioned to benefit as a leading player in the industry, anticipating a recovery in demand alongside supply-side adjustments [5] Summary by Sections Revenue and Profitability - The company’s revenue for FY24 was 20.1 billion yuan, with a projected revenue of 10.05 billion yuan for H2 FY24, showing a year-on-year increase of 4.6% [2] - The gross margin for FY24 was 28.8%, an increase of 4.9 percentage points year-on-year, attributed to lower raw material prices and improved operational management [4] Business Segments - The raw milk segment achieved a revenue of 15.1 billion yuan in FY24, with a volume of 3.6695 million tons, a year-on-year increase of 24.6%, while the average selling price (ASP) decreased by 6.1% to 4.12 yuan/kg [3] - The company has increased its dairy cow inventory to 622,000 heads, a year-on-year increase of 6.7%, enhancing its production capacity [3] Future Outlook - The company has adjusted its revenue forecasts for FY25 and FY26 to 22.25 billion yuan and 24.49 billion yuan respectively, with an additional forecast for FY27 at 25.79 billion yuan [6] - The expected earnings per share (EPS) for FY25 and FY26 have been revised to 0.17 yuan and 0.28 yuan respectively, with a new forecast for FY27 at 0.38 yuan [7]

Summary of Dairy Industry Conference Call Industry Overview - The dairy industry is expected to face an oversupply situation in 2024, with domestic raw milk production projected to decrease by 3% in 2025, leading to a potential supply-demand balance in the second half of the year [1][4] - The industry has seen a significant shift in structure, with domestic production increasing from 25 million tons to 32 million tons, while imports have decreased from over 22 million tons to around 15 million tons [2] Key Insights and Arguments - Investment opportunities are currently concentrated in the upstream segment, as upstream capacity reduction is expected to lead to a reversal of the industry cycle and an increase in milk prices [1][5] - The price of contract milk has decreased, with spot milk prices dropping to 1.5 RMB/kg, causing cash flow pressures for social farms [1][8] - Major dairy companies are expected to see improved operating profits and gross margins due to increased downstream demand and cost advantages from locking in low-priced raw materials [9][10] Future Predictions - By 2025, the dairy market is anticipated to reach a state of supply-demand balance, with a projected reduction in total production due to cash flow pressures on social farms [7][4] - The overall surplus in 2024 is estimated to be around 200,000 to 300,000 tons, indicating a high single-digit percentage of oversupply [2] Investment Opportunities - Current investment opportunities are primarily in the upstream sector, with expectations that as upstream capacity is reduced, the investment focus will shift to downstream dairy products [5][6] - The valuation of leading dairy companies has been recovering, with a price-to-book (PB) ratio of approximately 0.8, indicating significant upside potential [11] Market Dynamics - The price of beef directly impacts the industry's clearing pace, with lower beef prices leading to reduced cash recovery from culling cows, thus prolonging the current cycle [13][14] - The cash recovery from culling cows has decreased significantly, affecting the overall economic viability of dairy farming [14] Regulatory and Policy Considerations - Future policies may focus on promoting family farming, which could alter the current market dynamics but is unlikely to significantly change the existing structure in the short term [18][19] - The implementation of new policies faces challenges, particularly in ensuring food safety and quality, as smaller enterprises may struggle to meet the standards set by larger companies [19] Monitoring Indicators - Key indicators to monitor include contract milk prices, raw milk prices, and the volume of limited contract purchases, as well as high-frequency data on inventory and consumption policies [12] - The ratio of heifers to mature cows is currently around 51% to 52%, with concerns that if high-yield cows are culled without timely replacements, it could lead to short-term milk shortages [22] Conclusion - The dairy industry is at a critical juncture, with potential investment opportunities in the upstream segment as the market adjusts to supply-demand dynamics. Monitoring key indicators and regulatory developments will be essential for navigating the evolving landscape of the dairy sector [28]