CLSA released a research report stating that China's raw milk prices have bottomed out, with the industry's overcapacity situation continuing to diminish. The report anticipates that raw milk prices will rebound in the second half of 2026, supported by the gradual release of production capacity for formula powder and deep-processed dairy products, along with a stabilization in demand for liquid milk.

The firm believes that the stabilization of raw milk prices will benefit leading dairy companies with strong control over upstream resources. Among these, MENGNIU DAIRY's liquid milk business accounts for a significant proportion, offering considerable room for profit recovery. Coupled with its low valuation, Mengniu is expected 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, the report views Inner Mongolia Yili Industrial Group Co., Ltd. favorably due to its diversified business portfolio and generous dividend payouts, assigning it an 'Outperform' rating with a target price of RMB 35.

The report cites data indicating that the number of dairy cows in mainland China has been consistently declining since 2024, dropping from 6.5 million head in December 2023 to 5.8 million head in March of this year, reflecting good progress in capacity reduction.