Core Viewpoint - The announcement from Feihe has led to a significant decline in its market value, with a projected revenue drop and net profit decrease for the first half of 2025 compared to the previous year [1][4]. Group 1: Financial Performance - Feihe expects revenue for the first half of 2025 to be approximately 9.1 billion to 9.3 billion yuan, down from 10.1 billion yuan in the same period of 2024, representing a decline of about 8% to 10% [1]. - The projected net profit for the first half of 2025 is estimated to be between 1 billion to 1.2 billion yuan, reflecting a year-on-year decrease of approximately 37% to 47% [1]. - Following the announcement, Feihe's stock price plummeted by 17.02% on the next trading day and an additional 3.17% the following day, resulting in a total market value loss of 10.15 billion HKD, equivalent to approximately 9.28 billion yuan [1]. Group 2: Market Dynamics - The decline in birth rates poses a long-term challenge for the infant formula industry, with Feihe's revenue and profit having previously increased in 2024, but now facing a downturn again in 2025 [1][16]. - Feihe has initiated a substantial fertility subsidy program valued at 1.2 billion yuan to attract potential customers, but this strategy may lead to a price war and does not guarantee revenue growth [2][3]. - Competitors such as Yili and Junlebao have also launched similar subsidy programs, which may dilute the effectiveness of Feihe's efforts to capture market share [3]. Group 3: Inventory and Growth Challenges - Feihe's inventory levels have increased significantly, with stock surpassing 2 billion yuan, and inventory turnover days rising from 80 days in 2021 to 113.7 days in 2024 [6][10]. - The management anticipates completing inventory adjustments by the third quarter of 2025, but the impact of the subsidy program on revenue may be more pronounced in the second half of the year [9][10]. - Analysts from various financial institutions have revised their growth expectations for Feihe, with projections indicating a potential revenue growth of only 0.5% for 2025, down from earlier estimates of 9% [5]. Group 4: Product Strategy and Market Trends - Feihe plans to launch higher-end products in the second half of 2025, aligning with market trends that show growth in the ultra-premium segment of the infant formula market [12][11]. - Data indicates that the ultra-high-end market has seen a year-on-year growth of 13.3% in early 2025, while other segments have experienced declines [12]. - Despite these efforts, the performance of new products remains uncertain, and the overall demand for infant formula is declining due to lower birth rates [13][16]. Group 5: Shareholder Returns - Feihe has announced a minimum share buyback plan of 1 billion yuan and a dividend distribution of no less than 2 billion yuan, aiming to enhance shareholder value [14]. - However, despite these positive initiatives, the negative impact of the company's financial performance has overshadowed these efforts, leading to a significant drop in market capitalization [15].

Core Viewpoint - The Chinese dairy industry is undergoing a significant transformation driven by changes in population structure, particularly a decline in newborn numbers, prompting companies to shift from passive responses to proactive strategies, including substantial fertility subsidy programs aimed at stimulating birth rates and consumer potential [3][4][5]. Group 1: Market Dynamics - The infant formula market has shrunk from 188.5 billion yuan in 2020 to 157.2 billion yuan in 2023, with newborn numbers dropping to 9.02 million in 2023, nearly halving since 2016 [3][4]. - Major dairy companies like Feihe and Yili have launched substantial fertility subsidy plans, with Feihe committing 1.2 billion yuan and Yili 1.6 billion yuan to support eligible families [4][5]. - The introduction of these subsidies is a strategic response to a shrinking market, with companies aiming to capture consumer demand from pregnancy through early childhood [4][6]. Group 2: Competitive Strategies - The competition among dairy companies has shifted from price wars to subsidy wars, with a focus on user engagement and long-term customer relationships [5][6]. - Companies are leveraging these subsidies to bypass traditional retail channels, directly reaching consumers and reducing the influence of intermediaries [6][7]. - The trend of declining mother-baby retail stores, which have seen a 40% reduction in numbers over the past five years, has prompted companies to innovate their business models [6][8]. Group 3: Industry Implications - The high subsidies represent a "capital game" among leading firms, with market concentration increasing as the top five companies' market share rose by 7 percentage points to 68% in 2023 [8]. - Smaller regional brands face challenges in competing with the financial power of larger companies, leading to a potential reduction in their market presence [8]. - The long-term success of these subsidy initiatives will depend on the companies' ability to convert short-term incentives into lasting consumer loyalty through product quality and service [8].