China Post Securities released a research report stating that Youran Dairy (09858) stands to benefit from the ongoing reduction in dairy cow inventories and a significant rise in beef prices, which is expected to substantially boost profits from culled cattle. Concurrently, dairy companies' expansion into deep-processing capacity is effectively regulating market supply, potentially accelerating industry capacity rationalization further, collectively driving a recovery in raw milk prices by 2026. The "Buy" rating is maintained. The main views of China Post Securities are as follows:
The ongoing clearance of dairy cow inventories suggests a potential recovery in raw milk prices by 2026. The reduction in dairy cow inventories is showing a trend of deepening and accelerating, with multiple factors jointly pushing industry capacity back towards a supply-demand equilibrium. After reaching a阶段性高点 in February 2024, the national dairy cow inventory has cumulatively decreased by 540,000 head over nearly 20 months, a drop of 8.1%, with the pace of monthly reduction accelerating recently. Compounded by persistent rainy weather affecting some regions in the third quarter, which hindered the harvesting and storage of silage leading to reserve shortages, many farms are struggling to maintain their original herd sizes due to feeding pressures, intensifying the culling of low-yield cattle and inventory clearance. This process not only optimizes the industry's herd structure but also effectively alleviates previous oversupply pressures, laying a foundation for the bottoming out and stabilization of fresh milk prices.
Simultaneously, the dairy industry is addressing raw milk supply by increasing deep-processing capacity, forming a crucial support for supply-demand adjustment. Deep-processed products like cheese, whole milk powder, and skimmed milk powder consume several times more raw milk than liquid milk products, becoming a key factor in balancing market supply. Leading dairy companies are actively entering this segment; for instance, Junlebao collaborated with Sinodis to launch high-end cream, while Yili and Mengniu are focusing on developing original cheese categories, Miaokelanduo continues to expand its original cheese production capacity, and Bright Dairy, among others, is enriching its deep-processing portfolio through new product iterations. The commencement or operation of multiple deep-processing projects within the industry extends the value chain and flexibly absorbs raw milk supply, ensuring stable industry development alongside inventory reduction and promoting a transition towards higher quality in the dairy sector.
Beef prices began to reverse in 2025, potentially thickening the company's profits from culled cattle. According to iFind, the average domestic beef wholesale price increased from 57 yuan/kg in February to 66 yuan/kg in December, a rise of 15.79%. To optimize herd structure for long-term development, farms annually cull some adult cows, with the price of culled cattle linked to market beef prices. During an upward trend in beef prices, farm profits from culling are expected to rise accordingly, with these gains primarily reflected in changes in the fair value of biological assets. With further expected increases in beef prices, the report forecasts that the company's profits from culling could be further enhanced. Additionally, rising beef prices are likely to encourage further reduction in dairy cow capacity, accelerating the achievement of a raw milk supply-demand balance. The report conducted an incremental profit elasticity calculation based on this: 1) Culling assumptions: According to Holstein, approximately 28% of low-yield or aging cows in the initial female herd are culled annually. To maintain a stable proportion of adult cows, it is estimated that about 40% of the annual reserve heifers transition to adult cows, with a minor 10% culled from this group. Furthermore, the probability of male and female calves among newborns is assumed equal. Youran's dairy cow inventory is projected to grow by an average of 4% annually in 2026-2027, with the female cow ratio maintained at 52%. Assuming adult cows weigh 300kg/head and young bulls 50kg/head, the estimated culled female cattle volumes for 2025-2027 are 30,900/32,000/33,200 tons, and culled young bull volumes are 8,100/8,400/8,700 tons, respectively. 2) Profit elasticity calculation: Based on the Shandong Dairy Association, the estimated culling price for Youran's adult cows in 2024 is 15.5 yuan/kg, and for young bulls is 22 yuan/kg. Assuming price increases for culled cattle in 2025/2026/2027 relative to 2024 are 10%/25%/35% respectively, the culling of adult cows is projected to bring incremental profits of 0.87/1.55/2.75 billion yuan for Youran Dairy, and the culling of young bulls is projected to bring 0.40/0.58/1.03 billion yuan, totaling incremental profits of 1.27/2.13/3.78 billion yuan for 2025-2027.
Earnings forecast and investment recommendation. According to Dairy Times, the dairy cow inventory had fallen below 6 million head by 2025 and is expected to decline further to around 5.8 million head in 2026, completing the capacity reduction in quantitative terms. Raw milk prices continued to bottom out in 2025, with the rate of decline narrowing significantly quarter-on-quarter; a recovery is anticipated post the 2026 capacity rationalization. The combination of recovering raw milk prices and reversing beef prices is expected to lead to substantial improvements in the company's profits and reductions in biological asset impairment. The report forecasts company revenues of 208.05, 217.22, and 229.82 billion yuan for 2025-2027, representing year-on-year growth of 3.53%, 4.41%, and 5.80%, respectively. Net profit attributable to shareholders is projected to be 5.12, 16.78, and 28.56 billion yuan, with year-on-year growth of 174.12%, 227.65%, and 70.19%, respectively. The "Buy" rating is maintained.
Risk提示: Food safety risks; risks associated with raw milk price recovery falling short of expectations; risks associated with beef price recovery falling short of expectations.
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