In "The Big Banks," Citigroup: Last year's birth rate in China fell short of expectations, expecting intensified competition in the infant formula market

Citi published a research report indicating that the National Bureau of Statistics recently announced that China's birth population in 2025 will be 7.92 million, lower than the bank and milk powder manufacturers' expectations. Considering the high base in 2024, the year-on-year decline in the birth population reached 17%. The bank currently predicts that the milk powder market size in 2025 will remain roughly flat year-on-year. Taking into account the 2025 birth population data, the increase in marriage registrations, and the average selling price growth under the ongoing trend of premiumization, it forecasts that the milk powder market size will decline by 3% year-on-year in 2026.

Citi pointed out that the lower-than-expected birth numbers mean that competition in the infant formula market will intensify. For companies, product structure and sales momentum are crucial. As the birth peak in 2024 gradually shifts to stage 3 products, companies with a stable customer base and the ability to gain consumer trust in stage 1 and stage 2 products are believed to benefit more from existing customers extending their purchases to stage 3 products.

Citi prefers YILI (600887.SH) and H&H INTL (01112.HK) over China Feihe (06186.HK), giving each an "Outperform" rating, with target prices of RMB 34, HKD 16.4, and HKD 4.9, respectively