Core Viewpoint - Li Ziyuan has announced the termination of its wholly-owned subsidiary's external investment due to declining sales and low capacity utilization, while still maintaining several ongoing construction projects with a total budget of 1.58 billion yuan [1][3][4]. Group 1: Investment and Capacity - The terminated capacity project was planned since 2022, with an initial investment of approximately 200 million yuan for three sterile filling production lines [2]. - As of 2024, Li Ziyuan has five factories with a total capacity of 375,900 tons, but the actual utilization is only 248,800 tons, resulting in a capacity utilization rate of 66% [3]. - The company has ongoing projects with a total budget of 1.58 billion yuan, and by 2029, the capacity is expected to increase by 58% to 592,600 tons [3]. Group 2: Sales Performance - Li Ziyuan's revenue from dairy beverages has stagnated since 2022, with a significant decline of 11.19% in the first half of this year [3][6]. - The company relies heavily on sweet milk products, which account for about 90% of its main business revenue, making it vulnerable to market changes [7]. - Sales in key markets such as East China and Central China have declined, with a drop exceeding 10% in some areas [7]. Group 3: Product Innovation and Costs - To address product aging, Li Ziyuan is launching new products, including flavored milk and nutrient drinks, with a total investment of 320 million yuan in a deep processing project [8]. - The sales expense ratio has increased from around 12% to nearly 15% in the first half of this year, which offsets the gross margin improvement from lower raw material costs [8]. - The gross margin is expected to increase by 3.23 percentage points in 2024, while the net margin is projected to decline by nearly 1 percentage point [8].