Yili and Mengniu have emerged from their revenue slump, and a turning point for the industry is brewing.

After years of pressure on demand and price competition, the dairy industry is seeing clearer signs of recovery in revenue for companies like Yili and Mengniu.

On August 26, the two companies released their interim results for 2026. In the first half of the year, Yili achieved operating revenue of 64.331 billion yuan, a year-on-year increase of 4.1%; Mengniu's revenue was 44.795 billion yuan, a year-on-year increase of 7.8%.

As the core business, liquid milk also recovered simultaneously. Yili's liquid milk revenue increased by 1.3% year-on-year to 36.59 billion yuan; Mengniu's revenue increased by 5.2% to 33.865 billion yuan, showing a more significant rebound.

Mengniu has therefore raised its full-year revenue growth target from mid-single digits to high single digits. Management stated that the growth in the first half of the year was mainly driven by sales volume, and the operating performance in July and August also showed that there is still room for growth in liquid milk.

Yili maintains its target of single-digit revenue growth for the full year and strives to continue to improve its core operating profit margin.

However, the recovery in revenue has not yet fully translated into increased profits.

In the first half of the year, Yili's net profit attributable to the parent company decreased by 20% due to asset impairment; Mengniu's net profit attributable to the parent company increased by 15.9%, with its joint ventures turning from loss to profit making a significant contribution.

The real profit inflection point still depends on further improvements in end-user prices, high-value-added businesses, and asset quality.

How to stabilize income?

The rebound in revenue for Yili and Mengniu is primarily due to the leading companies' proactive channel adjustments over the past two years.

Following the Spring Festival in 2024, Yili took the lead in promoting channel inventory reduction and a "freshness strategy." Management stated that as of the first half of 2026, liquid milk channel inventory was at a relatively good level, and product freshness and distributor turnover efficiency continued to improve.

Song Liang, head of the industry expert group of the China State Farms Dairy Industry Alliance, told Wall Street Insights·All-Weather Technology that in the first half of the year, Yili and Mengniu reduced dealer inventory while also strengthening the management of online price chaos and cross-selling, resulting in improved terminal inventory and pricing systems compared to before.

In addition to the recovery of traditional channels, new growth is also shifting towards membership stores, snack supermarkets, instant retail and B2B channels.

Song Liang observed that in the past, many of the customized dairy products sold through channels such as Sam's Club and Aldi were manufactured by small and medium-sized dairy companies; since the beginning of this year, related orders have begun to concentrate more on leading dairy companies such as Yili and Mengniu.

In the first half of the year, Yili launched Sam's Club customized MM freshly brewed platinum black coffee; Mengniu launched Sam's Club organic high-calcium fresh milk and Modern Ranch Direct-delivered 0 lactose soft milk, among other channel-exclusive products.

The effects are already reflected in revenue. In the first half of the year, Yili's membership stores, snack supermarkets, instant retail, and B2B businesses all achieved double-digit growth.

Mengniu has adopted a similar approach. The company is promoting the transformation of its RTM channel model and strengthening its membership stores, casual snacks, instant retail, and B2B channels.

Inventory turnover days decreased from 36 days to 30.5 days in the first half of the year. Telunsu and Mengniu basic white milk achieved high single-digit growth, and fresh milk revenue increased by more than 30%.

Marketing campaigns for events like the Winter Olympics and the World Cup are being used more directly to drive sales. Mengniu disclosed that overall sales increased by 12% during the Winter Olympics marketing period; online GMV increased by 14% during the World Cup, and convenience stores and other channels also saw rapid growth.

However, judging from the sales volume of dairy products across all channels and the CPI for dairy products, the overall average selling price of the industry is still at a low level.

In its semi-annual report, Mengniu explicitly stated that in order to cope with market competition, the company adjusted the prices of some basic products in the second half of 2025. This impact continued into the first half of 2026 and became one of the reasons for the 0.9 percentage point decrease in gross profit margin.

While Yili emphasizes maintaining its terminal price system, management also acknowledges that consumer purchasing power has not yet fully recovered, and the industry's average selling price remains low.

The low cost of raw milk has provided a temporary buffer.

Benefiting from lower raw milk costs and improved product structure, Yili's gross profit margin still increased by 0.25 percentage points in the first half of the year; Mengniu's gross profit margin decreased by 0.9 percentage points due to lower prices of basic products and higher prices of some raw and auxiliary materials.

The recovery of revenue for leading companies does not mean that industry demand has fully reversed.

According to Nielsen IQ data, dairy product sales across all channels declined by 9.7% and 8.6% in May and June, respectively; meanwhile, dairy production by large-scale enterprises increased by 5.8% in the first half of the year, and the dairy CPI fell by 1.7% in June.

The industry's supply and demand have improved compared to the trough, but product unit prices, terminal discounts, and consumption structure remain weak.

External assets amplify profit volatility

While Yili and Mengniu appear to have opposite profit directions, their reported profits are clearly affected by acquisitions and investments outside their main brands.

Yili's problems are concentrated in Ausnutria Dairy.

In the first half of the year, Yili's asset impairment losses increased from RMB337 million to RMB2.456 billion, including RMB1.547 billion in goodwill impairment of Ausnutria; and RMB908 million in inventory write-downs.

Behind the impairment is Ausnutria's weakening operations once again. In the first half of the year, Ausnutria's revenue was 3.11 billion yuan, a year-on-year decrease of about 20%, and it turned from a profit of 181 million yuan to a loss of 726 million yuan. At the same time, it promoted inventory clearance, SKU reduction and supply chain adjustment.

This is not the first time Ausnutria has dragged down Yili. At the end of 2024, Yili had already recorded a goodwill impairment of RMB 3.037 billion for Ausnutria.

Ausnutria's weakness does not represent Yili's entire infant formula business.

In the first half of the year, Yili's revenue from milk powder and dairy products was approximately RMB 16.8 billion. According to a rough estimate based on publicly available data, excluding Ausnutria, the revenue from related businesses grew by about 8%, with Jinlingguan achieving mid-to-high single-digit growth.

However, this growth largely stems from increased market share within the existing market. Song Liang believes that the contraction in demand for infant formula, coupled with the ARA raw material controversy at the beginning of the year, increased costs associated with consumer communication and channel maintenance.

“Yili’s milk powder business is larger, and therefore more susceptible to cost fluctuations, which is one of the marginal factors contributing to its weaker profit performance compared to Mengniu,” said Song Liang.

The divergence in the profit performance of the two companies is also related to the different stages of impairment and recovery of their external assets.

In 2024, Mengniu recognized impairment losses on assets such as Bellamy's and Modern Farming, resulting in a drop in net profit attributable to the parent company to RMB 105 million that year, of which the net impact of impairment losses related to Bellamy's was RMB 3.981 billion.

Entering 2026, some assets began to recover. In the first half of the year, Mengniu's share of the profits of its associates turned from a loss of 585 million yuan to a profit of 40 million yuan, with Modern Farming being the main contributor to this turnaround; Bellamy's revenue increased by more than 60%, and the cheese business revenue increased by more than 30%.

However, these businesses are still relatively small in scale. Liquid milk still accounts for about three-quarters of Mengniu's revenue, while milk powder and cheese combined account for only about 12%. The group's profit recovery ultimately depends on whether the price and gross profit margin of liquid milk can stabilize.

The profit inflection point has not yet arrived.

The primary variable determining the industry's profit trend in the next stage remains the supply and demand of raw milk.

The reduction of dairy cows in the upstream dairy industry has been ongoing for two years. Yili's management cited monitoring data from the Ministry of Agriculture and Rural Affairs, stating that as of the end of June 2026, the number of dairy cows in China had decreased by 4.3% year-on-year, and the number of dairy farmers had decreased by more than 20% year-on-year, indicating that the supply contraction is gradually being transmitted to the price side.

Contract milk prices bottomed out and stabilized in the first half of the year, while market prices for bulk milk began to rebound. Data from the Ministry of Agriculture and Rural Affairs shows that in the third week of July, the average price of raw milk in major producing provinces rose to 3.05 yuan/kg, a year-on-year increase of 0.3%, with the year-on-year growth rate turning positive.

Song Liang believes that after a four- to five-year downward cycle, raw milk prices are approaching an inflection point. As milk prices rebound, the cost advantage of white-label, OEM, and private domain brands that rely on low-priced raw materials will be weakened, and some consumer demand is expected to re-concentrate on mainstream brands such as Yili and Mengniu, potentially further consolidating the market position of leading companies.

The two companies have largely the same assessment of the inflection point between supply and demand.

Yili's management expects milk prices to steadily recover year-on-year in the second half of 2026, and by 2027 the industry's supply and demand may enter a more clearly balanced phase with moderate price increases.

Mengniu's management has a similar assessment, believing that the supply and demand of raw milk is trending towards balance, and price competition in the industry is expected to ease in the second half of the year.

The second variable is whether the growth structure can shift from contributing to revenue to contributing to profits.

Ultimately, both dairy giants need to shift from basic white milk and other homogeneous, low-value-added products to functional nutrition, cheese, fresh milk, professional catering dairy products, and intensive dairy processing.

Only by increasing the output value per kilogram of raw milk can companies reduce their dependence on basic liquid milk sales volume and price competition.

Lactoferrin, casein, and demineralized whey powder are among the more representative areas. These raw materials can be used in infant formula, sports nutrition, special medical foods, and functional nutrition products, and their technological barriers and unit value are generally higher than those of basic liquid milk.

Currently, China still relies heavily on imports for many high-end raw materials. Domestic substitution can not only reduce the consumption of raw milk, but also increase the value of processing by-products such as whey.

Both companies have moved from the planning stage to the production line implementation stage, but their progress differs.

In March 2026, Yili put into operation a production line with an annual output of 10,000 tons of pure mozzarella cheese, forming an independent production capacity from core raw materials to end cheese products; at the same time, it introduced the first fully electrodialysis D90 desalted whey powder production line in China, with a desalination rate of 90%.

Its Ningxia professional raw material base was put into operation in July 2026, with a daily fresh milk processing capacity of 500 tons.

Mengniu's high-end milk protein raw materials have entered the mass production stage. After the "Milk Cube" core raw material production line under its subsidiary went into operation, three types of raw materials—lactoferrin, membrane-isolated casein, and demineralized whey powder D90—have achieved domestic mass production.

In the first half of this year, Mengniu also launched the professional dairy brand MnmpX, directing related products to markets such as infant formula, functional nutrition, and professional catering.

The transition from "selling more" to "earning more" still faces three hurdles: end-user prices, growth structure, and historical acquisitions.

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