UBS: Dairy leader announces maternity allowance plan to give China Feihe (06186) a “buy” rating

Zhitong Finance App learned that UBS released a research report saying that in March 2025, China's dairy cows continued to decline; China's Feihe (06186) and Yili Co., Ltd. (600887.SH) announced maternity allowance plans. The bank stated that it gave China Feihe, Yili Co., Ltd. and Mengniu Dairy (02319) the target prices were HK$7.4, RMB 37.2 and HK$23.3, respectively, as well as the “neutral” rating and target price of RMB 18.5 for 600882.SH.

UBS's main views are as follows:

Supply: Cow stocks continued to decline in March

According to data from China's Ministry of Agriculture and Rural Affairs, in March 2025, due to low raw milk prices, the year-on-year decline in dairy cows increased to 5.7%, and 0.5% month-on-month to 6.09 million heads. However, milk production remained flat year over year in March, mainly due to a slight increase in the yield of grandma cows that can be produced. In terms of profitability, about 93% of farming groups were in a state of loss, up 4 percentage points from month to month. In March, milk production profit was -0.36 yuan per kilogram, an increase of 0.14 yuan per kilogram.

Demand remains weak; leading companies announce maternity allowance plans

Channel research shows that consumption of dairy products remained weak in March, and retail sales continued to decline year-on-year in the first quarter of 2025. In response to the national policy to encourage childbearing, Yili and Feihe both announced maternity allowance plans (Yili's subsidy is 1.6 billion yuan, and Feihe's subsidy is 1.2 billion yuan). These subsidy programs will be launched in April 2025 for a period of 12 months to provide powdered milk products to eligible families preparing for pregnancy. The bank believes that this move highlights corporate social responsibility and helps the two companies effectively attract new customers.

Costs: The price of raw milk has declined; the pressure on soybean meal prices has eased

At the end of March, the price of raw milk fell slightly to 3.07 yuan per kilogram (down 0.3% month-on-month and 12% year-on-year), while retail milk prices fell 0.2% month-on-month and 0.9% year-on-year. In March, the prices of corn and soybean meal, the main feed ingredients, rose 2% and 15% month-on-month, and fell 8% and 10%, respectively. The CIF prices for alfalfa and oat grass remained low, falling 14% and 3% year over year, respectively. Due to sufficient supply in South America, the pressure on soybean meal costs eased in March. However, China recently announced additional tariffs on imports of major US agricultural products from April 12 (raised from 84% to 125%), which may put upward pressure on soybean meal and alfalfa prices.