Core Viewpoint - Kaiyuan Securities initiates coverage on Youran Dairy (09858) with a "Buy" rating, highlighting the company's significant scale advantages and resilience during the industry cycle's bottom, with steady revenue growth expected [1] Industry Overview - The cyclical fluctuations in the dairy industry are slowing down, with a turning point in milk prices anticipated. The current cycle has seen a 31% decline in milk prices over the past four years, with a projected decrease in dairy cow inventory by 3.2% by September 2025, leading to a slowdown in milk production growth [2] - Demand for dairy products is showing marginal improvement, with the release of deep processing capacity and exploration of exports for bulk powder and live cattle, which may help narrow the supply-demand gap [2] Company Strengths - Youran Dairy is the industry leader with a dairy cow inventory of 622,000 heads and a raw milk production of 3.75 million tons in 2024, ensuring strong sales through strategic partnerships [3] - The company has a 30% share of specialty milk, leading to higher gross margins and smoothing out price fluctuations. Its subsidiary, Saikexing, is the largest dairy cattle breeding company in China, enhancing cost control through its feed business [3] - The company's earnings elasticity is significantly influenced by rising raw milk and beef prices, with projections indicating a potential increase in gross profit by 460 million yuan if milk prices rise by 3.5% [3]

Core Viewpoint - Open Source Securities initiates coverage on Youran Dairy (09858) with a "Buy" rating, highlighting the company's significant scale advantages and resilience during industry downturns, with steady revenue growth expected and cash EBITDA projected to continue increasing in H1 2025 [1] Industry Analysis - The cyclical fluctuations in the dairy industry are slowing down, with a turning point in milk prices anticipated. The current cycle has seen milk prices decline for four years, with a cumulative drop of 31% since September 2021. The dairy cow inventory is expected to decrease by 3.2% by September 2025, leading to a slowdown in milk production growth. As feed costs rise and milk prices remain low, losses for dairy farms are expected to deepen, potentially leading to further reductions in inventory and a decline in raw milk production [1][2] - On the demand side, dairy product output is showing marginal improvement, with the release of deep processing capacity and exploration of exports for bulk powder and live cattle, which may help narrow the supply-demand gap. Milk prices are expected to stabilize and rebound in 2026, benefiting upstream dairy companies [1] Company Analysis - Youran Dairy is the industry leader with a dairy cow inventory of 622,000 heads and a raw milk output of 3.75 million tons in 2024. The company has a strategic partnership with Yili Group to secure raw milk sales. Approximately 30% of the company's milk is specialty milk, which helps maintain a leading gross margin and smoothens price fluctuations [2] - The company’s subsidiary, Saikexing, is the largest dairy cow breeding enterprise in China, enhancing the efficiency of dairy farming. The feed business is also the largest in the industry, helping to control costs. In H1 2025, the average milk yield per cow is projected to reach 12.9 tons, with feed costs at 1.91 yuan/kg, both of which are competitive within the industry [2] - The company's earnings elasticity is significantly influenced by the prices of raw milk and beef cattle. A hypothetical 3.5% increase in industry milk prices could lead to an additional gross profit of 460 million yuan, while a 10% increase in beef cattle prices could reduce losses from culling by 110 million yuan [2]

Investment Rating - The industry investment rating is "Positive" (maintained) [1] Core Viewpoints - The supply-demand structure of raw milk is improving, and the snack food sector continues to show upward momentum. The food and beverage index increased by 2.1% from January 5 to January 9, ranking 24th among 28 sectors, underperforming the CSI 300 by approximately 0.7 percentage points. Sub-sectors such as processed foods (+6.7%), soft drinks (+5.8%), and snacks (+4.5%) performed relatively well [3][10][12]. Summary by Relevant Sections Weekly Insights - The supply-demand dynamics for raw milk are optimizing, and the snack food sector is experiencing sustained growth. The recent policy by the Ministry of Commerce to implement safeguard measures on imported beef is expected to alleviate the impact on domestic industries, leading to a potential increase in beef prices over the next 2-3 years. The domestic dairy sector is facing challenges, with a continuous reduction in dairy cow inventory, which may lead to a widening supply-demand gap post-Spring Festival [10][11]. Market Performance - The food and beverage index rose by 2.1% from January 5 to January 9, ranking 24th out of 28 sectors, and underperformed the CSI 300 by about 0.7 percentage points. Leading individual stocks included Qianwei Yangchun, Anji Food, and Yangyuan Beverage, while stocks like Jiabi You, *ST Chuntian, and Xianle Health saw declines [12][13]. Upstream Data - As of January 6, the GDT auction price for whole milk powder was $3,407 per ton, reflecting a 10.4% year-on-year decrease. The domestic fresh milk price was 3.03 yuan per kilogram, down 2.9% year-on-year. The domestic milk price is expected to remain under pressure in the short to medium term [19][21]. Recommended Stocks - The report recommends focusing on companies that are likely to benefit from the improving raw milk supply-demand balance and the growth in the snack food sector. Notable mentions include: - Yuran Agriculture: Expected to benefit from the recovery in raw milk prices. - Modern Dairy: Anticipated to gain from the overall industry improvement. - Yili Group and Mengniu Dairy: Expected to see positive impacts from the anticipated recovery in milk prices [10][11]. Snack Food Sector - The snack food sector is projected to continue its upward trend, particularly during the Spring Festival season. Companies such as Weilang Delicious, Ganyuan Food, and Yanjin Food are highlighted for their potential growth due to seasonal demand and strategic initiatives [11][12].