Core Viewpoint - The company's 1H25 performance aligns with expectations, showing a decline in revenue and an increase in losses compared to the previous year, but with improvements in production metrics and cash EBITDA margin [1][2]. Financial Performance - Revenue for 1H25 was 6.073 billion yuan, down 5.4% year-on-year; net profit attributable to shareholders was a loss of 0.913 billion yuan, compared to a loss of 0.228 billion yuan in the same period last year; cash EBITDA was 1.477 billion yuan, down 2.5% year-on-year [1]. - The company's gross margin improved by 0.3 percentage points to 26.4% in 1H25, while the raw milk gross margin decreased by 0.1 percentage points to 30.2% due to weak market demand [2]. - The cost of milk sales per kilogram decreased by 10.1% year-on-year, with feed costs down 11.4% due to improved production and strategic adjustments [2]. Production and Market Trends - The company saw a 1.5% year-on-year increase in milk yield per cow to 13.2 tons, with a herd size of 472,000 heads, up 6.2% year-on-year [1]. - Raw milk production increased by 14.6% year-on-year, with specialty milk production exceeding 130,000 tons, up 67% year-on-year [1]. - The industry continues to experience an oversupply, with raw milk prices down 11.7% year-on-year, while the company's milk prices fell by 10.1%, outperforming the industry [1]. Future Outlook - The industry is expected to continue its contraction, with a projected decrease in the national dairy cow population by approximately 160,000 heads by the end of 1H25 [3]. - The company anticipates a slight decrease in dairy cow numbers in the second half of the year, with continued improvements in yield and total production growth in the mid-to-high single digits [3]. - An upward trend in beef prices is expected to mitigate losses from culling cows, positively impacting fair value changes and net profit [3]. Profit Forecast and Valuation - The profit forecast for 2025 and 2026 has been revised down by 410% and 52% to losses of 0.97 billion yuan and profits of 0.36 billion yuan, respectively [3]. - The current trading is at 26 times the 2026 P/E ratio, with a target price of 1.43 HKD, corresponding to 28 times the 2026 P/E and an 8% upside potential, maintaining an outperform rating [3].