CLSA has released a research report stating that Chinese raw milk prices have bottomed out, with industry overcapacity continuing to diminish. Supported by the gradual ramp-up of formula powder and deep-processed dairy product capacity, alongside stabilizing liquid milk demand, raw milk prices are expected to rebound in the second half of 2026. The firm believes that stabilizing raw milk prices will benefit leading dairy companies with strong control over upstream resources. Among these, MENGNIU DAIRY (02319), with its significant proportion of liquid milk business, substantial potential for profit recovery, and relatively low valuation, is projected to be a primary beneficiary. CLSA maintains a "High Conviction Outperform" rating on MENGNIU DAIRY with an unchanged target price of HK$21.1. Concurrently, it views Yili Industrial Group Co., Ltd. (600887.SH) favorably for its diversified business portfolio and generous dividend policy, assigning it an "Outperform" rating with a target price of RMB 35. The report cites data indicating a continuous decline in the number of dairy cows in mainland China since 2024, dropping from 6.5 million head in December 2023 to 5.8 million head in March this year, reflecting effective progress in capacity reduction. Furthermore, recent increases in beef prices and outbreaks of foot-and-mouth disease are expected to accelerate the culling of low-yield cows, further tightening raw milk supply. With deep-processed solid dairy product capacity set to be constructed through 2025 and gradually come online starting in the second half of 2026, demand for raw milk is anticipated to recover.
Comments