Huatai Securities: The dairy industry is expected to reach a turning point in supply and demand in 2026.

Huatai Securities research report indicates that the Chinese dairy industry is currently in a period of low milk prices, leading to continuous capacity reduction in upstream farming, downstream dairy companies clearing out inventory, and waiting for a recovery in end demand. It is expected that under the reshaping of the supply and demand relationship due to the decline in raw milk production and mild improvement in demand for dairy products, the industry is likely to return to supply-demand balance by 2026. At that time, the increase in raw milk prices will directly catalyze the profits and stock prices of upstream pastoral enterprises. As the market value of the dairy industry chain is heavily concentrated in downstream dairy companies, historical cycles indicate that a mild increase in milk prices benefits the improvement in gross sales difference and profit margins of downstream enterprises. Currently, the two major leading companies have tacitly entered a stage of profit enhancement. In the medium to long term, Huatai Securities believes that there is still room for growth in the dairy industry, with potential sources of volume growth coming from channel expansion, habit improvement, and popularization of milk for students, and potential price growth coming from the penetration of low-temperature milk or sustainable products.