Lyon believes that the 12% year-on-year decline in raw milk prices in China since this year reflects an imbalance between supply and demand, which is affected by the fact that the process of reducing excess capacity is slower than expected. The bank's channel survey showed that demand for liquid milk weakened, with sales falling by double digits year-on-year in May and June. Currently, discounts are more a passive response to weak demand. Product prices are expected to return after demand increases and inventory removal is completed. Lyon favors Mengniu. Based on its low valuation, constant leadership position, and potential to improve shareholder returns, it also believes that the stock price already reflects the challenges it is facing.
The bank lowered Mengniu's net profit forecast for this year to 2026 by 10% to 14%, and lowered its target price to HK$22, maintaining a “outperforming the market” rating. The bank also lowered Erie's net profit forecast of 6% to 9% from this year to 2026, and lowered the target price to 32 yuan. The rating is also “outperforming the market.”