UBS: Leading dairy company announces maternity allowance plan, China Feihe (06186) rated as "buy"

UBS released a research report stating that the inventory of dairy cows in China continued to decline in March 2025; CHINA FEIHE (06186) and Inner Mongolia Yili Industrial Group (600887.SH) announced a fertility subsidy plan. The bank stated that it rated CHINA FEIHE, Inner Mongolia Yili Industrial Group, and MENGNIU DAIRY (02319) as "buy", with target prices of 7.4 Hong Kong dollars, 37.2 RMB, and 23.3 Hong Kong dollars, respectively. Shanghai Milkground Food Tech (600882.SH) was rated as "neutral" with a target price of 18.5 RMB. UBS's main points are as follows: Supply: Dairy cow inventory continues to decline in March According to data from the Ministry of Agriculture and Rural Affairs of China, in March 2025, influenced by the low raw milk prices, the year-on-year decline in dairy cow inventory expanded to 5.7%, a decrease of 0.5% from the previous month, dropping to 6.09 million heads. However, the milk production in March remained relatively stable year-on-year, mainly due to a slight increase in the milk yield per cow. In terms of profitability, about 93% of breeding groups are in a loss-making state, with a 4-percentage-point increase from the previous month. The profit from milk production in March was -0.36 RMB per kilogram, an increase of 0.14 RMB in losses per kilogram from the previous month. Demand remains weak; leading companies announce fertility subsidy plans Channel research shows that dairy product consumption in March remained weak, with retail sales in the first quarter of 2025 continuing to decline year-on-year. In response to the government's encouragement of fertility policy, Yili and Feihe announced fertility subsidy plans (Yili with 1.6 billion RMB subsidy, Feihe with 1.2 billion RMB subsidy). These subsidy plans will be launched in April 2025 and last for 12 months, providing milk powder products to eligible families preparing for pregnancy. The bank believes that this initiative demonstrates corporate social responsibility and will help both companies attract new customers effectively. Costs: Raw milk prices are decreasing; pressure on soybean meal prices easing At the end of March, raw milk prices saw a slight decrease to 3.07 RMB per kilogram (down 0.3% from the previous month, down 12% year-on-year), while retail milk prices decreased by 0.2% month-on-month and 0.9% year-on-year. In March, the prices of main feed ingredients corn and soybean meal increased by 2% and decreased by 15% month-on-month, respectively, and decreased by 8% and 10% year-on-year, respectively. The prices of alfalfa and oat grass remained at low levels, decreasing by 14% and 3% year-on-year, respectively. Due to ample supply in South America, the cost pressure on soybean meal eased in March. However, China recently announced an increase in tariffs on imports from the United States, which may bring upward pressure on soybean meal and alfalfa prices.