Investment Rating - The industry investment rating is "Outperform the Market" (maintained) [2][3] Core Views - The report emphasizes the importance of the livestock industry's cyclical reversal, with potential growth opportunities arising from the interconnection between meat and dairy sectors [1][5] - The beef market is expected to experience a significant price increase due to a reduction in supply, with a projected gap similar to the 2019 African swine fever cycle, leading to a bullish outlook until 2028 [5][6][8] - The dairy market is currently at a low point, but signs of recovery are anticipated by 2026, driven by a reduction in milk supply and an increase in processing capacity [17][28] Summary by Sections Beef Market Outlook - As of December 2025, the average price of beef in major production areas is 65.73 CNY/kg, up 16% from the year's low, while fresh milk prices have decreased by approximately 3% to 3.02 CNY/kg [4] - The beef price-to-milk price ratio has reached a historical high of nearly 22, indicating a strong market for beef [4] - The industry is expected to see a significant reduction in beef supply due to the elimination of mother cows, with a supply gap projected to widen until 2028 [5][6][8] Dairy Market Outlook - The average price of fresh milk is projected to remain low until 2025, with a potential recovery in 2026 as the supply of dairy cows begins to tighten [17][28] - The report notes that the proportion of mature dairy cows in the industry has reached historical highs, suggesting that the rate of culling will exceed the rate of replenishment, indicating an impending supply shortage [17][28] - The expansion of deep processing capacity in the dairy sector is expected to enhance demand for raw milk, potentially leading to an earlier-than-expected market recovery [17][23] Valuation and Investment Recommendations - The livestock sector's price-to-book (PB) ratio is currently around 1, which is at the 20th percentile of its historical cycle, indicating room for valuation recovery [27] - The report recommends focusing on dairy farming stocks, as improvements in raw milk prices are expected to benefit profitability, while the beef cycle's upward trend will enhance earnings from culling and calf sales [28] - Key companies highlighted for investment include Yuran Agriculture and Modern Farming, which are expected to benefit from the synergistic growth of the meat and dairy sectors [28]