Kaiyuan Securities has issued a research report initiating coverage on Youran Dairy (09858) with a "Buy" rating. Youran Dairy is a leading domestic dairy farm operator with significant scale advantages. The company has demonstrated strong operational resilience during the cyclical downturn, achieving steady revenue growth. Its cash EBITDA continued to grow in the first half of 2025. Following the completion of its capacity expansion, the company has entered a period of stable development and is poised to benefit from the simultaneous increase in raw milk and beef cattle prices, which is expected to fully unleash its earnings potential. The brokerage forecasts net profits attributable to shareholders for 2025-2027 to be -0.88 billion, 13.67 billion, and 27.68 billion yuan, respectively, with corresponding EPS of -0.02, 0.33, and 0.66 yuan. The current stock price implies a PE ratio of 13.1x for 2026 and 6.5x for 2027. The main viewpoints of Kaiyuan Securities are as follows.
Cyclical fluctuations in the industry are moderating, and an inflection point in milk prices is approaching. With deep integration of the industrial chain, the ongoing increase in the scale of dairy farms, and rising milk yield per cow, fluctuations in upstream production capacity have slowed, leading to a lengthening of the milk price cycle. The current cycle has seen milk prices decline for four years since September 2021, with a cumulative drop of 31%. From a supply perspective, China's dairy cattle inventory decreased by 3.2% in September 2025 compared to January, leading to a slowdown in milk production growth. Looking ahead, as feed cost pressures intensify and milk prices remain persistently low, farm losses are deepening. This is expected to lead to further destocking, resulting in a subsequent decline in raw milk production. Regarding imports, domestic milk powder still holds a price advantage, and import volume is not projected to increase significantly in 2026. On the demand side, dairy product output has shown marginal improvement. The industry's deep processing capacity is set to be released, and explorations into exporting milk powder and live cattle are gradually materializing, which are expected to help narrow the supply-demand gap. The brokerage anticipates that milk prices will stabilize and begin to recover in 2026, directly benefiting upstream dairy farm companies.
The leading player boasts significant advantages across the entire industry chain, and the potential simultaneous increase in milk and beef prices is expected to contribute substantially to earnings flexibility. For raw milk: In 2024, the company had a dairy cattle inventory of 622,000 head and produced 3.75 million tons of raw milk, ranking first in the industry by scale. Its strategic cooperation with Inner Mongolia Yili Industrial Group secures sales of its raw milk. The proportion of specialty milk accounts for about 30%, higher than industry peers, which supports a leading gross margin for raw milk and helps mitigate the impact of declining milk prices. Ruminant animal solutions: The company's subsidiary, Saikexing, is China's largest dairy cattle breeding enterprise, effectively empowering dairy farming operations. Its feed business is the largest in the industry, synergizing with the farming segment to control costs. In the first half of 2025, milk yield per cow reached 12.9 tons, and feed cost per kilogram of milk was 1.91 yuan/kg, both at relatively favorable levels within the industry. Simultaneously, the company is actively exploring opportunities with beef cattle and sheep clients beyond dairy cows, opening up future growth avenues. The company's earnings flexibility primarily stems from increases in raw milk and beef cattle prices. Assuming other factors remain constant, calculations under a neutral scenario indicate that a 3.5% increase in industry milk prices would boost the company's gross profit by 460 million yuan, while also potentially increasing the valuation of mature cows. A 10% rise in beef cattle prices would reduce culling losses by 110 million yuan.
Risk warnings include a slower-than-expected upstream capacity reduction and increase in beef cattle prices, weaker-than-anticipated terminal demand, and rising cost pressures.
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