China Dairy Sector: 2024 Is Likely Another Year of Slow Growth Despite Cost Pressures Alleviating

We trim our 2023-24 earnings forecasts for wide-moat Yili and narrow-moat Mengniu by 4%-15% as we expect only a mild recovery in China's dairy demand. We project the liquid milk segments of both companies to grow in the low to mid-single digits in 2024, while Mengniu continues to slightly outpace Yili. Although the raw milk price is set to trend lower in 2024 and will benefit margins, this also increases the likelihood of price competition from smaller players.