Guotai Haitong released a research report maintaining an "Overweight" rating on CH MODERN D (01117). The firm forecasts the company's EPS for 2026-27 will be RMB 0.05 and RMB 0.19 per share, respectively. As a leading enterprise in the husbandry sector, the company is poised to benefit from the reversal of the meat and dairy cycle. Applying a 2025 P/B ratio of 1.3x, the corresponding target price is HK$1.85 per share. The company is actively progressing with the acquisition of Sainty, and post-integration scale effects are expected to strengthen further. With the current cycle bottoming out and herd reduction accelerating, the implementation of countervailing policies is anticipated to hasten the domestic substitution process.

The acquisition is progressing steadily, representing a powerful alliance with complementary advantages. The company continues to advance the Sainty acquisition; on October 30, it signed an irrevocable proxy voting agreement for China Shengmu shares with Mengniu, among others, and plans to acquire a 1.28% stake in China Shengmu for HK$37.52 million. Upon completion of the share purchase agreement, the combined shareholding of CH MODERN D and its concert parties will exceed 30%, triggering a mandatory general offer. The offer price is HK$0.35 per share, representing a nearly 15% premium over the last trading day's price but a discount of approximately 30% to net asset value per share. On December 24, the company provided a new update, indicating that the State Administration for Market Regulation has accepted the anti-monopoly application. A shareholders' meeting is scheduled for January 16, 2026, and upon approval, the share purchase agreement is expected to be executed no later than June 30, 2026.

Integrating upstream pasture resources will yield synergistic effects, reducing costs and increasing efficiency. In H1 2025, China Shengmu's revenue decreased 3.1% year-on-year to RMB 14.44 billion, with sales volume increasing 6.3% to 373,000 tons and the average selling price declining 8.9% to RMB 3.87/kg. The dairy herd inventory decreased by 900 head sequentially to 143,600 head. This acquisition will integrate upstream pasture resources under major shareholder Mengniu, further enhancing scale effects. Post-integration, the company's total herd size will exceed 610,000 head, and raw milk production will surpass 4 million tons. The proportion of specialty milk production is expected to rise from 8% to over 20%. The company and China Shengmu will achieve synergies in resources, technology, market, and management, potentially optimizing the product and asset structure and further reducing procurement costs due to economies of scale.

The cycle is bottoming with accelerated herd reduction, and policy implementation is speeding up domestic substitution. The dairy herd inventory saw accelerated reduction in November, primarily due to persistent funding pressures and the emerging impact of reduced replenishment of replacement heifers. The subsequent gap in herd replenishment is expected to become more apparent month by month. Recently, the Ministry of Commerce announced a preliminary ruling on its countervailing investigation into certain dairy products imported from the EU. Starting December 23, temporary countervailing duty deposits will be imposed, with adjudicated ad valorem subsidy rates ranging from 21.9% to 42.7%. The product scope includes cheese and cream, among others. In 2023, the volume of subsidized imported products was 129,500 tons, accounting for 17.5% market share. From January to November 2025, imports reached 93,000 tons. With the implementation of countervailing policies, the domestic substitution process in China's deep-processing dairy industry is expected to accelerate, further boosting demand for raw milk.

Risk warnings include herd reduction and price reversal falling short of expectations, fluctuations in feed costs, and food safety issues.