A research report from CMSC International indicates that the bottoming of raw milk prices in China's dairy industry signals a critical inflection point for the upstream sector and the entire dairy chain. This development is expected to initiate a multi-year cycle of valuation reassessment. The firm's preferred upstream stock is YOURAN DAIRY (09858), which benefits from higher average selling prices supported by specialty fresh milk accounting for over 20% of its product mix. Through herd optimization and yield improvements, there remains potential to reduce milk production costs by 0.1 to 0.2 yuan per kilogram. The recovery in milk prices is anticipated to increase the fair value of biological assets and reduce losses from culling. Under a neutral scenario, which assumes a 2% increase in milk prices and stable costs, net profit before biological asset adjustments is projected to grow 17% year-on-year.
CMSC International has upgraded its rating for downstream leader MENGNIU DAIRY (02319) to "Add." The report suggests that after two years of capacity and inventory reduction, the industry's supply-demand gap is calculated to have narrowed to a single-digit percentage by the second half of 2025, with raw milk prices stabilizing at 3.0-3.05 yuan per kilogram in the fourth quarter of 2025. The prolonged downturn has accelerated the exit of small and medium-sized farms, leading to a restructuring of the supply side and further market concentration toward leading players.
MENGNIU DAIRY demonstrated a steady performance in the first quarter, with liquid milk sales achieving high single-digit growth, while other segments such as formula milk powder, cheese, and fresh milk recorded double-digit growth. The report forecasts that revenue from joint ventures will recover to a profit of 110 million yuan by 2026. The company plans to steadily increase its dividend per share during the 2025–2027 period while maintaining a share repurchase pace consistent with 2024/2025 levels. This strategy is expected to be supported by relatively stable, and potentially lower, capital expenditure targets.
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