Summary of the China Infant Milk Formula Conference Call Industry Overview - The report focuses on the **China Infant Milk Formula (IMF)** industry and its outlook in light of changing birth rates and government policies regarding fertility subsidies [1][4][11]. Key Insights 1. **Birth Rate Projections**: - A moderate decline in birth rates is expected in **2025** after the Year of the Dragon in **2024**. The anticipated year-on-year changes in birth rates for **2026-2028** are projected as follows: - Bull case: **1%** increase - Base case: **-3%** decrease - Bear case: **-5%** decrease [1][2]. 2. **Infant Population Trends**: - The decline in the infant population (ages 0-3) is expected to narrow in **2025** and **2026** compared to a **-4%** decline in **2024**. Projections for **2027** and **2028** indicate stabilization in the bull case, a **-3%** decline in the base case, and a **-5%** decline in the bear case [3]. 3. **IMF Market Dynamics**: - The IMF market is experiencing a trend of **premiumization**, with ultra-premium product sales growing despite a weak macroeconomic environment. The sales value decline narrowed from **-10%** in **2023** to **-7%** in **2024**. The average selling price (ASP) has remained stable, indicating a better product mix that offsets price competition [4][5]. 4. **Sales Forecasts**: - Sales decline in the IMF market is expected to further narrow in the following scenarios: - Base case: **-1% to -4%** - Bear case: **-2% to -6%** - Bull case: stabilization [4]. 5. **Stock Implications**: - Companies like **Feihe** and **A2 Milk** are expected to gain market share due to their strong positioning in lower-tier markets and effective execution strategies. Feihe is particularly well-positioned to benefit from the birth subsidy in lower-tier cities [5][14][18]. Additional Considerations - **Demographic Challenges**: - The female population of childbearing age (20-39 years) is projected to decline by **2-3%** annually from **2025-2028**, which poses a long-term challenge for birth rates and, consequently, the IMF market [2][8]. - **Risks**: - Key risks affecting the IMF industry include potential food safety issues, lower-than-expected gross profit margins, and a decline in the infant population size. These factors could impede stock performance and market recovery [15][21]. - **Valuation Metrics**: - Target prices for Feihe and Health and Happiness (H&H) are set based on P/E ratios and sum-of-the-parts (SOTP) approaches, reflecting the expected recovery in the market [14][16]. This summary encapsulates the critical insights and projections regarding the China Infant Milk Formula industry, highlighting both opportunities and risks for investors.