Open Source Securities: Reiterates 'Buy' Rating for Youyan Pasture (09858) Amid Strong Operational Resilience at Cycle Bottom

According to Zhitong Finance, Open Source Securities released a research report stating that Youyan Pasture (09858) $YOURAN DAIRY (09858.HK)$ Strong operational resilience at the cycle bottom; maintaining net profit attributable to shareholders of RMB 1.37 billion, RMB 2.77 billion for 2026-2027 respectively, adding a forecast of RMB 4.16 billion for 2028. EPS is RMB 0.33, RMB 0.66, and RMB 0.99, with current share price corresponding to PE ratios of 10.7x, 5.3x, and 3.5x respectively. In 2025, the company will optimize its cattle structure to prepare for future growth, potentially benefiting from simultaneous rises in raw milk and beef cattle prices, which could fully unlock earnings potential. The 'Buy' rating is maintained.

The main view of Open Source Securities is as follows:

The company renewed multiple agreements with Yili Group, showcasing strong operational resilience in 2025.

The company renewed dairy product (milk powder, feed-grade milk powder) procurement framework agreements, raw milk purchase and sale framework agreements, and financial services framework agreements with Yili, effective from January 2027 to December 31, 2029. The company expects supply-demand relations to improve in 2026, with moderate increases in milk prices from 2027 to 2029. In 2025, the company achieved revenue of RMB 20.65 billion, up 2.8% year-over-year; net loss attributable to shareholders was RMB 432 million, narrowing by 37.5% year-over-year, while cash EBITDA was RMB 5.59 billion, up 4.9% year-over-year.

In 2025, sales volume drove steady growth in core business, with cattle structure optimization laying the groundwork for future development.

By business segment, raw milk/systematic solutions generated revenues of RMB 16.02 billion/RMB 4.63 billion in 2025, representing year-over-year changes of +6.1% and -7.3%, respectively. Raw milk business: Maintained steady growth, with sales volume reaching 4.153 million tons, an increase of 13.2% year-over-year, primarily driven by increased milk yield per adult cow (12.8 tons/cow·year) and optimized cattle structure (proportion of adult cows increased to 55.0%). Raw milk unit price was RMB 3.86/kg, down 6.2% year-over-year (RMB 0.26 decrease per kg), mainly due to ongoing market price pressure. Systematic solutions business: Still under pressure, partly due to industry demand and adjusted sales strategies, and partly due to price adjustments based on declining raw material costs. Looking ahead, improving supply-demand dynamics in the industry may stabilize and boost milk prices. The company's increasing proportion of core cattle and continuous yield improvements lay the foundation for future operational enhancements. As the industry cycle reverses, demand for systematic solutions is expected to improve, collectively driving revenue growth.

Fair value adjustment of biological assets weighed on profits, further strengthening cost advantages.

In 2025, the company’s gross margin was 29.8% (up 1.0 percentage points year-over-year). The raw milk gross margin was 34.3% (up 1.5 percentage points year-over-year), primarily due to lower raw material prices and lean management practices that reduced costs and improved efficiency. In 2025, the cost of milk per kilogram was RMB 2.54/kg, down 8.4% year-over-year, with feed costs dropping to RMB 1.88/kg, a decrease of 10.5% year-over-year. The gross margin for systematic solutions was 14.2% (down 2.6 percentage points year-over-year), mainly due to adjusted sales strategies and customer concessions. Selling expenses/administrative expenses in 2025 were -0.1 percentage points/+0.1 percentage points year-over-year, respectively. Additionally, losses from fair value adjustments of biological assets minus cost of sales changes amounted to RMB 4.312 billion, widening by approximately 10% year-over-year, primarily due to falling milk prices, increased cow culling, and declining market prices for 14-month-old heifers, dragging down full-year profitability. Excluding this item, annual profit was RMB 3.88 billion, up 26.7% year-over-year. Looking ahead, as milk prices stabilize and rise, and the company continues to reduce costs and improve efficiency, gross margin is expected to increase further, expense ratios may remain stable, and with rising beef cattle prices and normalized culling rhythms, fair value adjustments for biological assets may recover, boosting the company’s profitability.

Risk Warning:Macroeconomic fluctuation risks, significant birth rate decline risks, raw material price fluctuation risks.

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