Core Viewpoint - The infant formula industry leader, Feihe, is facing significant challenges with a projected profit decline in the first half of 2025 and only low single-digit revenue growth for the entire year, attributed to multiple factors beyond just declining birth rates [1][3]. Group 1: Market Dynamics - Feihe has launched a 1.2 billion yuan subsidy plan to stimulate demand among new parents, which has led to a price war as competitors like Yili and Junlebao also introduced substantial subsidy plans [1][4]. - The overall market for infant formula has shrunk from 157.2 billion yuan in 2023 to 142 billion yuan in 2024 due to declining birth rates, with the number of newborns in 2024 at 9.54 million [1][3]. Group 2: Financial and Operational Challenges - Feihe's inventory has increased from 1.284 billion yuan at the end of 2020 to 2.154 billion yuan at the end of 2024, with inventory turnover days extending from 69 to 114 days, indicating significant inventory pressure [6]. - The reduction in government subsidies, which fell from 973 million yuan in 2023 to 664 million yuan in 2024, has further impacted Feihe's profitability [6][9]. Group 3: Brand and Consumer Perception - Feihe's premium pricing strategy is misaligned with current consumer preferences, as the majority of the market favors products priced between 200-299 yuan, while Feihe's main products are priced between 350-450 yuan [7]. - Despite heavy marketing expenditures amounting to 7.18 billion yuan in 2024, which is 35% of revenue, the effectiveness of these marketing efforts is diminishing, leading to a decline in brand trust due to quality complaints [8][9]. Group 4: Strategic Initiatives and Future Outlook - Feihe is attempting to diversify its product offerings beyond infant formula to include adult nutrition and health products, but these new segments currently contribute less than 10% to total revenue [10]. - The company is also expanding into international markets, with its Canadian factory now operational, yet overseas revenue remains low, accounting for only about 1% of total revenue in 2024 [10][11]. Group 5: Industry Context - Feihe's challenges reflect a broader shift in the Chinese infant formula industry from growth through new customer acquisition to competition for existing market share, necessitating a transformation in business strategy to enhance resilience in a low-growth environment [11].

Summary of Key Points from the Conference Call Industry Overview - The report focuses on the **China Consumer Market**, particularly in the **cosmetics**, **sportswear**, and **infant milk formula (IMF)** sectors, analyzing performance across major e-commerce platforms like Tmall, Taobao, and JD. Key Highlights 1. Category Performance - **White Goods**: Grew by **15% year-over-year (yoy)** in July, outperforming other categories. - **RVC/Small Kitchen Appliances**: Recorded growth of **14%** and **10% yoy**, respectively. - **Sports Shoes/Sportswear**: Achieved **11%** and **7% yoy** growth. - **Declines**: Categories such as **IMF, Beer, Pet Products, and Beauty** saw declines, with **Women's Clothing, Condiments, and Dairy** lagging at **15%**, **17%**, and **24% yoy** declines, respectively [1][13][12]. 2. Domestic vs. MNC Brands in Cosmetics - **Local Brands**: Mass/local brands regained market share from premium/MNC brands, reversing trends from the previous period. - **Shanghai Jahwa, Marubi, and KANs** led with growth rates of **58%**, **51%**, and **48% yoy**. - **Giant, Perfect Diary, and Botanee** grew by **24%**, **7%**, and **2%** respectively. - **MNC Brands**: - **LGHH** was the only MNC to show positive growth at **9% yoy**. - **L'Oreal** declined by **2%**, while **Estee Lauder** and **Shiseido** faced declines of **MSD to HSD% yoy**. - **Kose** and **Amore** underperformed with declines of **19%** and **49% yoy** [2][23]. 3. Sportswear Market Insights - Both MNCs and local brands experienced positive online growth in July, attributed to a favorable base. - **Anta** reported improved performance in mid-July, expecting recovery in Q3. - **Xtep** noted retail sales acceleration, while **Li Ning** faced pressure with deeper discounts yoy. - The divergence in brand performance is attributed to product and fashion cycles, with brands executing omni-channel strategies [3]. 4. Infant Milk Formula (IMF) Performance - **Sales Growth**: On Tmall/Taobao, IMF sales grew by **11%** in July, an improvement from **-4%** in June. - **Top Brands**: Local brand **Yili** (including Pro-Kido) showed strong momentum with **33%** growth in July, while **Feihe** slowed to **6%** growth. - Among MNCs, **Biostime, Mead Johnson, and Wyeth** outperformed with growth rates of **48%**, **42%**, and **32%** respectively [17][18]. 5. Brand Performance Summary - **Outperforming Brands**: Included **Herborist, Collgene, Marubi, KANs, HR, Uniqlo, Gree, Ecovacs, Roborock, Fila, Lululemon, and Pop Mart**. - **Underperforming Brands**: Included **Timage, QuadHA, Yili, and Cha cha** [4]. Additional Insights - The report indicates a shift in consumer preferences towards local brands, particularly in the cosmetics sector, as they regain market share from MNCs. - The performance of various categories suggests a mixed recovery in consumer spending, with some sectors experiencing robust growth while others face significant declines. - The analysis highlights the importance of omni-channel strategies in capturing market share and responding to changing consumer behaviors [2][3][23].

Group 1 - Dairy stocks continue to show strong performance, with China Shengmu (01432) up 9.09% to HKD 0.48, Yurun Dairy (09858) up 3.53% to HKD 4.4, Mengniu Dairy (02319) up 1.46% to HKD 16.67, and Ausnutria (01717) up 1.19% to HKD 2.55 [1] - The implementation plan for the childcare subsidy system was released on July 28, which will provide a subsidy of HKD 3,600 per child per year for children under three years old starting from January 1, 2025, benefiting over 20 million families [1] - The policy is expected to directly boost the consumption of dairy products, particularly infant formula [1] Group 2 - Guosen Securities is optimistic about the reversal of the beef cycle in 2025, predicting that meat prices will continue to rise until 2027 [1] - The domestic raw milk supply and demand situation is expected to improve in the second half of 2025, leading to a potential price recovery [1] - The improvement in raw milk prices is favorable for the profitability of dairy farming, and the upward trend in the beef cycle is expected to significantly enhance the income from culling dairy cows and selling calves, recommending Yurun Dairy, Modern Dairy, and China Shengmu for their high performance recovery potential [1]

Market Overview - The Hang Seng Index rose by 0.09% to 24,929.34 points, while the Hang Seng Tech Index fell by 0.39% to 5,438.57 points [1] - The year-to-date performance of the Hang Seng Index is up 24.27%, and the Hang Seng Tech Index is up 21.72% [2] Technology Sector - Major tech stocks showed mixed performance: Alibaba fell by 1.35%, Tencent by 0.27%, while JD.com rose by 0.16% and Xiaomi by 0.79% [2] - Apple-related stocks performed strongly, with Hon Teng Precision rising over 7% and BYD Electronics over 4% [3] Food and Beverage Sector - The food and beverage sector saw significant gains, with Modern Dairy up over 15%, China Shengmu up over 11%, and other companies like Mengniu Dairy and Nongfu Spring also rising [3][4] - A new subsidy policy for families with infants is expected to boost dairy consumption, particularly in low-tier cities, benefiting the infant formula market [4] Dairy Industry Insights - The dairy industry is transitioning from scale expansion to value enhancement, with solid dairy products like cheese and butter gaining traction [4] - The B-end dairy market is projected to exceed 40 billion by 2024, with a CAGR of 14.3% expected from 2025 to 2028 [4] Beer Industry Outlook - The beer industry is expected to maintain stable consumption, with a long-term trend towards premiumization [5] - The exploration of second growth curves is anticipated to open up long-term growth opportunities [5] Semiconductor Sector - The semiconductor sector saw gains, with Hua Hong Semiconductor rising over 3% [6] - Goldman Sachs forecasts a 10% to 13% quarter-on-quarter revenue growth for Hua Hong Semiconductor in Q3, with a gross margin expectation of 10% to 12% [6]

Group 1 - Dairy stocks experienced a significant rise, with China Shengmu (01432) up 12.66% to HKD 0.445, YouRan Dairy (09858) up 8.87% to HKD 4.05, Modern Dairy (01117) up 8.77% to HKD 1.24, and Original Ecology Dairy (01431) up 7.14% to HKD 0.375 [1] - The implementation of the "Childcare Subsidy Implementation Plan" starting January 1, 2025, will provide a subsidy of HKD 3,600 per child per year for families with children under three years old, significantly reducing family childcare costs and stimulating birth rates and consumption potential in infant families, especially in lower-tier cities [1] - The annual distribution of childcare subsidies is estimated to be around HKD 100 billion, which is expected to have a multiplier effect and potentially increase demand in the dairy industry [1] Group 2 - The formal introduction of the national subsidy into the fertility sector reflects the government's high emphasis on fertility issues, with the dairy sector likely to see increased attention as national policies are implemented and followed by local policies [1] - The policy's alignment with previous expectations and its positive signal upon implementation indicate a strong governmental commitment to addressing fertility challenges, which is anticipated to boost the dairy product sector, particularly infant formula consumption [1]

Core Viewpoint - The recent rumors regarding price increases for infant formula following the announcement of national childcare subsidies have been refuted by several major dairy companies, indicating that the market conditions do not support such price hikes [1] Company Responses - Major dairy companies including Yili (伊利股份), China Feihe (中国飞鹤), and Beingmate (贝因美) have publicly stated that they have not raised prices for their infant formula products [1] - Beingmate specifically urged consumers not to believe or spread rumors about price increases, confirming that all products remain at their previous prices [1] Market Analysis - Industry analysis suggests that the declining birth rate in China has led to an oversupply in the infant formula market, resulting in intensified competition that does not favor price increases [1] - Despite social media claims of price hikes ranging from 30 to 50 yuan per can, investigations into the pricing of major brands over the past 180 days show no overall upward trend in prices [1]

Core Viewpoint - The article addresses the recent rumors regarding price increases of infant formula following the announcement of national childcare subsidies, clarifying that major companies in the dairy industry have not raised prices due to market conditions [3][4]. Industry Analysis - The domestic infant formula market is experiencing oversupply and intensified competition due to a continuous decline in newborn population, which does not support price increases [4][7]. - The total number of children aged 0-3 in China has decreased from 50.1 million in 2018 to 28.5 million in 2023, contributing to market contraction [7]. - Despite a slight rebound in birth rates in 2024, the overall downward trend in the market is expected to persist in the short term [8]. Company Responses - Major companies such as Yili (伊利股份), China Feihe (中国飞鹤), and Beingmate (贝因美) have publicly stated that they have not increased prices for their infant formula products [4][5]. - Beingmate specifically urged consumers not to believe or spread rumors about price hikes [4]. Market Trends - A survey indicated that approximately 70% of baby store owners reported no price increases in infant formula, while about 30% noted price adjustments unrelated to childcare subsidies, primarily due to promotional strategies [8]. - Since 2024, the infant formula industry has seen some sales recovery, attributed to both the rebound in newborn numbers and the restoration of market order after a prolonged price war among brands [8].

Core Viewpoint - The current oversupply in the infant formula market does not support price increases, despite rumors of price hikes following the announcement of national childcare subsidies [1][3]. Group 1: Market Conditions - The domestic infant formula market is experiencing oversupply due to a continuous decline in the number of newborns, leading to intensified competition [1][3]. - The total number of children aged 0-3 in China has decreased from 50.1 million in 2018 to 28.5 million in 2023, contributing to market contraction [3]. - Approximately 70% of surveyed baby store owners reported that prices of infant formula have not increased, while about 30% noted price adjustments unrelated to childcare subsidies [3]. Group 2: Company Responses - Major companies such as Yili, China Feihe, and Beingmate have denied any price increases for their infant formula products, urging consumers not to believe in rumors [1]. - Beingmate stated on its investor interaction platform that all products have not seen price hikes and encouraged the public to refrain from spreading false information [1]. Group 3: Industry Trends - The infant formula industry is in a deep adjustment phase, with a slight recovery in sales observed in 2024, attributed to both a rebound in newborn numbers and the restoration of market order [4]. - Analysts indicate that the price stabilization in the infant formula market is a result of long-term strategic adjustments by companies, moving away from aggressive price competition [4].

Investment Rating - The report rates the food and beverage industry as "stronger than the market" [2][5]. Core Insights - The food and beverage sector experienced a decline of 2.17% in the week of July 28 to August 1, underperforming the Shanghai Composite Index, which fell by 0.94% [8]. - The industry is currently at a historical low valuation, with a PE-TTM of 20.95x, placing it in the 16th percentile over the past 15 years [15][19]. - The introduction of the "Childcare Subsidy Policy" is expected to benefit the dairy sector, particularly infant formula, by stimulating consumption among over 20 million families [31]. - The white liquor segment is showing signs of bottoming out, with high-end light bottle liquor expected to be a growth area due to its strong repurchase rate and stable profit margins [26][24]. - The soft drink sector is entering a peak season, with a projected continuation of high growth due to new product launches and a favorable market environment [33]. Summary by Sections 1. Industry Performance - The food and beverage industry index fell by 2.17%, ranking 17th among 31 sub-industries [8]. - The sub-sectors with the least to most decline include: meat products (-0.03%), dairy products (-0.55%), health products (-1.11%), and soft drinks (-4.28%) [10][12]. 2. White Liquor - The white liquor industry is in a phase of stabilization, with high-end light bottle liquor showing strong growth potential [23]. - The anticipated investment of 1.2 trillion yuan in the Yajiang hydropower project is expected to stimulate long-term consumption in the white liquor sector [24]. - Major brands are increasing dividends, with the overall dividend yield in the white liquor sector exceeding 4% [3]. 3. Dairy Products - The newly implemented childcare subsidy policy is projected to directly boost dairy product consumption, especially infant formula [31]. - Companies like Beingmate and Sunshine Dairy have seen significant stock price increases following the announcement of the subsidy [4]. 4. Soft Drinks - The beverage industry has shown strong performance, with a 3.2% year-on-year increase in production in June 2025 [32]. - The sector is expected to maintain high growth due to the introduction of new products and the ongoing peak season [33]. 5. Cost Indicators - Sugar prices remained stable, while prices for soybeans, corrugated paper, and glass saw slight increases [36].

Group 1: Market Overview - A-shares collectively declined, with consumer ETFs showing a mixed performance, as the Consumption ETF (159928) recorded a net inflow of 1.76 million units, marking the seventh consecutive day of capital inflow, totaling over 1.2 billion yuan [1] - The Consumption ETF (159928) has a current scale exceeding 12.9 billion yuan, leading its peers significantly [1] - The Hong Kong Stock Connect Consumption 50 ETF (159268) also experienced a decline of 0.8%, but has seen net inflows for four consecutive days [1] Group 2: Government Initiatives - The government has allocated 690 billion yuan for the third batch of special bonds to support the consumption of old goods, with plans to release another 690 billion yuan in October, completing the annual target of 300 billion yuan [2] - Officials emphasized that the healthy development of consumption is a result of both enhancing consumer capacity and providing high-quality supply to create new demand [2] Group 3: Consumer Policy and Impact - New policies aimed at supporting families with multiple children are expected to stabilize birth rates and enhance consumer sentiment, particularly in the infant formula sector [4] - The expected increase in newborns to approximately 10 million by 2025 could lead to a total of 28.56 million newborns covered by the subsidy system, with an estimated subsidy amount of 102.8 billion yuan [4] - The release of consumer capacity and expansion of demand base are anticipated to benefit the infant formula industry, as families may upgrade to mid-to-high-end products due to improved disposable income [4] Group 4: Industry Insights - The food and beverage sector is seeing a slight increase in active fund holdings, with a focus on high-demand categories such as beverages and snacks, indicating a potential recovery in consumer spending [5] - The pig farming industry is expected to maintain profitability despite price pressures, with a focus on low-cost producers as the market stabilizes [6] - The Consumption ETF (159928) is noted for its resilience across economic cycles, with top holdings including major liquor brands and dairy companies, indicating strong sector fundamentals [7][8]