SDIC International Securities released a research report downgrading Ausnutria (01717) to an "Add" rating. The 2025 birth population is 79.2 million, a year-on-year decrease of 17%, with a birth rate of 5.63‰. Considering the domestic infant formula industry remains fiercely competitive, with potential for intensification next year, the firm expects the company's business to remain under pressure in the second half of the year. It has lowered its net profit forecasts for 2025/2026/2027 to 250/260/290 million yuan, corresponding to earnings per share (EPS) of HK$0.16/0.16/0.18. The target price has been revised down to HK$2.3, implying a 9% upside from the current share price.

The main views of SDIC International Securities are as follows: The 2025 birth population has declined significantly. The 2025 birth population is 79.2 million, a year-on-year decrease of 17%, with a birth rate of 5.63‰. 2024 was the Year of the Dragon, leading to a slight increase in the birth population, reaching 9.54 million; consequently, the infant formula industry experienced some easing of competition in the first half of 2025. By the second half of 2025, as the impact of the birth population becomes more apparent, the industry will continue to face relatively intense competition, which is expected to persist into next year.

Ausnutria achieved growth in its first-half performance. Total revenue for the first half reached 3.89 billion yuan, a year-on-year increase of 5.6%; net profit was 181 million yuan, up 21.4% year-on-year. Overseas goat milk formula supported the growth, with goat milk formula revenue in the first half of 2025 amounting to 1.86 billion yuan, a 3.1% increase year-on-year. Within this, overseas goat milk formula revenue was 480 million yuan, surging 65.7% year-on-year, accounting for 26% of total goat milk formula revenue, highlighting its growing importance. Domestic goat milk formula and cow milk formula performance was under pressure. Domestic goat milk formula revenue was 1.38 billion yuan, down 8.9% year-on-year. Cow milk formula revenue in the first half of 2025 was 960 million yuan, a decrease of 14.9% year-on-year. The sales decline was primarily due to the launch of an internal code system upgrade and proactive channel inventory adjustments in the second quarter, leading to a short-term reduction in shipments. Facing the competitive industry landscape in the second half, the firm expects sales in the domestic business to remain under pressure.

Product mix dragged down the gross profit margin. The gross profit margin for the first half of 2025 was 41.9%, down 1.5 percentage points year-on-year. The gross profit margin for goat milk formula decreased by 0.8 percentage points year-on-year to 55.1%, while the gross profit margin for cow milk formula fell by 0.8 percentage points to 52.3%. The promotion of internal code products in the first half slightly lowered the gross margins for both goat and cow milk formula. As the rollout of internal code products is expected to continue in the second half, the firm anticipates further downward pressure on the gross margin and has therefore lowered its full-year gross margin expectation.

Risk warnings include a decline in the birth population; intensification of industry competition; and the occurrence of severe food safety issues within the industry or the company.