According to a research report released by CLSA, short-term fluctuations in China's dairy industry will not change the supply-demand trend for raw milk. The brokerage maintained its "high conviction outperform" rating on Mengniu Dairy (02319) with a target price of HK$22.9, and kept its "outperform" rating on CH Modern D (01117) with a target price of HK$2.
CLSA noted that the number of milk-producing cows rebounded month-on-month in September, which sparked investor concerns over the sustainability of the decline in raw milk supply. However, the brokerage believes this was merely a temporary slowdown in culling速度 during the peak raw milk demand season, and it does not affect the medium-to-long-term trend of shrinking raw milk supply.
The brokerage expects mid-term raw milk prices to gradually rise to RMB 3.3 to 3.4 per kilogram, which would be sufficient to cover total production costs. CLSA believes that Mengniu Dairy and Inner Mongolia Yili Industrial Group Co.,Ltd. (600887.SH) will continue to regain liquid milk market share in the short to medium term during the raw milk price upcycle, though the pace may differ. With an improving competitive landscape, the two major dairy enterprises are expected to reduce discounts, potentially driving average selling prices higher.
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