Haitong International has issued a research report forecasting revenue for Youran Dairy (09858) to reach RMB 22.10 billion, RMB 23.87 billion, and RMB 25.54 billion for the years 2026 to 2028. Net profit attributable to owners is projected at RMB 1.288 billion, RMB 2.783 billion, and RMB 3.399 billion for the respective years, corresponding to earnings per share (EPS) of RMB 0.31, RMB 0.66, and RMB 0.81. This revises previous EPS forecasts of RMB 0.39 and RMB 0.55 for 2026 and 2027. Based on comparable company valuations and the firm's leading position in the upstream dairy sector, a target price-to-earnings (P/E) ratio of 16x for 2026 has been applied, up from a previous 13x. Consequently, the target price has been adjusted slightly upwards from HK$5.5 to HK$5.6. The "Outperform" rating is reaffirmed.
The report highlights that the cyclical bottom observed in 2025 demonstrated operational resilience. A simultaneous recovery in both dairy and beef cycles is anticipated to drive an earnings rebound starting in 2026. Key points from the analysis are as follows:
Youran Dairy's 2025 annual report showed full-year revenue of RMB 206.5 billion, a year-on-year increase of 2.8%. The loss attributable to owners narrowed significantly by 37.4% to RMB 4.3 billion, with an EPS loss of RMB 0.11 per share. The loss in the second half of 2025 narrowed further to RMB 1.4 billion compared to the first half, indicating expected performance improvement. Excluding the impact of changes in the fair value of biological assets, the annual profit was RMB 3.88 billion, up 26.7% year-on-year. Cash EBITDA reached RMB 5.59 billion, increasing by 4.9%, reflecting strong core operational metrics.
The company effectively countered price declines with volume growth and demonstrated notable cost control. Revenue from the core raw milk business rose 6.1% to RMB 160.2 billion, accounting for 77.6% of total revenue. Although the average milk price decreased by 6.3% to RMB 3.9 per kilogram, a rise in the milk yield per mature cow to 12.8 tons and an increase in their proportion to 55% drove sales volume up by 13.2% to 4.153 million tons, successfully offsetting the price drop. Revenue from ruminant animal farming solutions declined by 7.3% to RMB 4.63 billion, but sales volumes for beef and cattle feed and sex-controlled embryos surged by 46.7% and 45.1% respectively, indicating strong performance in premium categories. Feed cost per kilogram of raw milk decreased by 10.5%, contributing to an overall gross margin increase of 1.0 percentage point to 29.8%, with the raw milk business margin rising 1.6 percentage points to 34.3%.
The reported loss was primarily attributed to a non-cash loss of RMB 4.31 billion from the fair value change of biological assets. Excluding this, core business profitability showed substantial growth. Net cash flow from operating activities was RMB 5.95 billion, up 1.8% year-on-year, while free cash flow surged 687.9% to RMB 1.90 billion. Financial indicators also improved, with financing costs down 9.5% and asset impairment losses significantly reduced. A rights issue conducted in early 2026 is expected to further decrease the asset-liability ratio and optimize the capital structure.
The anticipated convergence of recovery cycles in both dairy and beef sectors positions 2026 for an earnings recovery. Capacity reduction in the raw milk industry is showing effects, leading to tighter supply-demand dynamics and a strong likelihood of stabilizing and rebounding milk prices in 2026. The company has already secured soybean meal costs for the first half of the year. Volume growth coupled with stable prices is expected to drive profit recovery. A shortage of breeding cows in the beef cattle industry suggests a price upturn cycle for 2027-2028. Youran Dairy's strategic move into beef cattle farming is likely to lead to a narrowing of impairments on biological assets. Furthermore, the commencement of operations at new downstream processing facilities will further stimulate demand for raw milk.
Potential risks include a slower-than-expected reduction in supply, rising commodity prices, and a weaker-than-anticipated recovery in downstream demand.
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