Kaiyuan Securities has released a research report stating that Youran Dairy (09858) demonstrates strong operational resilience at the bottom of the industry cycle. The firm maintains its net profit attributable to shareholders forecasts for 2026 and 2027 at RMB 1.37 billion and RMB 2.77 billion, respectively, and introduces a new forecast for 2028 of RMB 4.16 billion. Corresponding earnings per share (EPS) are projected at RMB 0.33, RMB 0.66, and RMB 0.99. The current stock price implies price-to-earnings (P/E) ratios of 10.7x, 5.3x, and 3.5x for those years. The company is optimizing its herd structure in 2025 to build a foundation for future development. It is poised to benefit from simultaneous price increases in raw milk and beef cattle, which should fully unleash its earnings potential, leading to the maintained "Overweight" rating. Key points from Kaiyuan Securities are as follows:

The company has renewed multiple agreements with Yili Group, demonstrating strong operational resilience for 2025. Youran Dairy has renewed framework agreements with Yili for the procurement of dairy products (including milk powder and feed-grade milk powder), the purchase and sale of raw milk, and financial services, effective from January 2027 to December 31, 2029. The company anticipates an improvement in supply-demand dynamics by 2026, with milk prices expected to rise moderately from 2027 to 2029. In 2025, the company achieved revenue of RMB 20.65 billion, a year-on-year increase of 2.8%. The net profit attributable to shareholders was a loss of RMB 432 million, representing a 37.5% reduction in losses compared to the previous year. Cash EBITDA reached RMB 5.59 billion, up 4.9% year-on-year.

In 2025, volume growth drove steady expansion in the core business, while herd structure optimization laid the groundwork for future development. By business segment, revenue from raw milk and systematic solutions in 2025 was RMB 16.02 billion and RMB 4.63 billion, increasing by 6.1% and decreasing by 7.3% year-on-year, respectively. The raw milk business maintained steady growth, with sales volume reaching 4.153 million tons, up 13.2% year-on-year. This was primarily driven by an increase in milk yield per mature cow (12.8 tons/head/year) and optimization of the herd structure (the proportion of mature cows rising to 55.0%). The average selling price for raw milk was RMB 3.86/kg, down 6.2% year-on-year (a decrease of RMB 0.26/kg), mainly due to persistently low industry-wide milk prices. The systematic solutions business remained under pressure, affected by both industry demand conditions and adjustments to sales strategies, including price reductions for products following declines in the cost of bulk raw materials. Looking ahead, continued improvement in industry supply and demand is expected to lead to stabilizing and recovering milk prices. The company's increased proportion of core herd and rising per-unit yields provide a foundation for operational improvement. Furthermore, as the industry cycle turns, demand for the solutions business is expected to recover, jointly driving future revenue growth.

Adjustments to the fair value of biological assets impacted profits, while cost advantages were further strengthened. The company's gross profit margin for 2025 was 29.8% (up 1.0 percentage point year-on-year). The gross margin for the raw milk segment was 34.3% (up 1.5 percentage points), primarily due to lower prices for bulk raw materials and the company's efforts in lean management for cost reduction and efficiency gains. The cost of sales per kilogram of milk in 2025 was RMB 2.54/kg, down 8.4% year-on-year, with feed costs specifically reduced to RMB 1.88/kg, down 10.5%. The gross margin for the systematic solutions segment was 14.2% (down 2.6 percentage points), mainly due to adjusted sales strategies and benefits passed on to customers. The sales expense ratio and administrative expense ratio changed by -0.1 and +0.1 percentage points year-on-year, respectively. Additionally, the loss arising from changes in the fair value of biological assets less costs to sell was RMB 4.312 billion, expanding by approximately 10% year-on-year. This was mainly attributable to lower milk prices, an increase in culled cattle, and a decline in the market price of 14-month-old heifers, which weighed on full-year profitability. Excluding this item, the annual profit was RMB 3.88 billion, an increase of 26.7% year-on-year. Looking forward, as milk prices stabilize and recover and the company continues its cost reduction and efficiency efforts, gross margins are expected to improve further. Expense ratios are likely to remain stable. Coupled with rising beef cattle prices and a normalization of culling rates, fair value adjustments for biological assets may see a recovery, potentially enhancing the company's overall profitability.

Risk warnings include macroeconomic fluctuations, a significant decline in birth rates, and volatility in raw material prices.