CLSA: Short-term fluctuations in China's dairy industry do not change raw milk supply-demand trend; MENGNIU DAIRY (02319) and Inner Mongolia Yili Industrial Group (600887.SH) are expected to continue recovering liquid milk market share.

CLSA issued a research report stating that short-term fluctuations in China's dairy industry do not change the raw milk supply-demand trend. It maintains MENGNIU DAIRY (02319) "High Conviction Outperform" rating and target price of HK$22.9, and maintains CH MODERN D (01117) "Outperform" rating and target price of HK$2. CLSA noted that the month-on-month rebound in the number of milk-producing cows in September triggered investor concerns over the sustainability of the decline in raw milk supply, but believes this reflects a temporary slowdown in culling pace during the peak raw milk demand season and does not affect the medium- to long-term trend of contracting raw milk supply. The bank expects raw milk prices to gradually rise to RMB3.3 to 3.4 per kilogram in the medium term, sufficient to cover total production costs. The bank believes that MENGNIU DAIRY and Inner Mongolia Yili Industrial Group (600887.SH) will continue to regain liquid milk market share in the short to medium term during the raw milk price upcycle, though the pace may differ; with the competitive landscape improving, the two major dairy enterprises are expected to reduce discounts, driving potential increases in average selling prices.