The two giants of the dairy industry are edging closer to the profit inflection point.
After years of sustained demand pressure and price competition in the dairy industry, Yili and Mengniu have started to show clearer recovery signals on the revenue side.
On August 26, the two companies released their 2026 interim results. 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 recorded revenue of 44.795 billion yuan, up 7.8% year on year.
As the core business segment, liquid milk also recovered in tandem. Yili's liquid milk revenue rose 1.3% year on year to 36.590 billion yuan; Mengniu's revenue increased 5.2% to 33.865 billion yuan, posting a more notable rebound.
Mengniu thus raised its full-year revenue growth target from mid-single digits to high single digits. The management stated that H1 growth was mainly driven by sales volume, and operating performance in July and August also indicates that there is still room for growth in the liquid milk segment.
Yili maintained its full-year revenue growth target at mid-single digits, and strives to continuously improve its core operating profit margin.
However, the revenue rebound has not been fully transmitted to the profit side.
In the first half of the year, dragged down by asset impairment, Yili's net profit attributable to shareholders fell by 20%; Mengniu's net profit attributable to shareholders increased by 15.9%, to which the turn of associates from loss to profit made a significant contribution.
The real profit inflection point still depends on further improvement of terminal prices, high value-added businesses and asset quality.
I
How Revenue Stabilized
The resumption of revenue growth for Yili and Mengniu is first and foremost related to the proactive channel adjustments made by the leading players in the past two years.
Yili took the lead in promoting channel destocking and the "freshness strategy" after the 2024 Spring Festival. The management said that as of the first half of 2026, the channel inventory of liquid milk has been at a relatively optimal level, and product freshness and dealer turnover efficiency continue to improve.
Song Liang, head of the industrial expert group of the China State Farms Dairy Alliance, told Wall Street CN · All-Weather Tech that in the first half of the year, while reducing dealer inventory, Yili and Mengniu also strengthened the governance of unregulated online pricing and transshipment of goods across regions, and the terminal inventory and price system have improved compared with before.
Apart from the recovery of traditional channels, new incremental volumes are also shifting to membership stores, snack wholesale stores, instant retail and B-end channels.
Song Liang observed that in the past, many customized dairy products for channels such as Sam's Club and ALDI were OEM-produced by small and medium-sized dairy enterprises; since the beginning of this year, relevant orders have been increasingly concentrated on leading dairy enterprises such as Yili and Mengniu.
In the first half of the year, Yili launched the Sam's customized MM instant-brew platinum black coffee; Mengniu launched channel-exclusive products such as Sam's organic high-calcium fresh milk and Modern Pasture direct-delivery 0-lactose soft milk.
The effect has been reflected on the revenue side. In the first half of the year, Yili's membership store, snack wholesale, instant retail and B-end businesses all achieved double-digit or higher growth.
Mengniu adopted a similar path. The company promoted the transformation of the RTM channel model, and strengthened its presence in membership stores, casual snacks, instant retail and B-end channels.
The number of inventory turnover days in the first half of the year dropped from 36 days to 30.5 days. Telunsu and Mengniu's basic plain milk achieved high single-digit growth, and fresh milk revenue increased by more than 30%.
Marketing activities such as the Winter Olympics and the World Cup have also been more directly applied to drive sales conversion. Mengniu disclosed that overall sales increased by 12% during the Winter Olympics marketing period; online GMV increased by 14% during the World Cup, and channels such as convenience stores also achieved rapid growth.
However, judging from the total channel sales of dairy products and the CPI of milk, the overall average selling price of the industry is still at a low level.
Mengniu clearly stated in its semi-annual report 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 decline in gross profit margin.
Although Yili emphasized the maintenance of the terminal price system, the management also acknowledged that consumers' purchasing power has not fully recovered at present, and the average selling price of the industry is still at a low level.
The low cost of raw milk has provided a temporary buffer.
Benefiting from the decline in raw milk cost and the improvement of product mix, Yili's gross profit margin still increased by 0.25 percentage points in the first half of the year; while Mengniu's gross profit margin decreased by 0.9 percentage points due to the price reduction of basic products and the price increase of some raw and auxiliary materials.
The recovery of leading players' revenue does not mean that industry demand has fully reversed.
According to Nielsen IQ data, the total channel sales of dairy products in May and June decreased by 9.7% and 8.6% respectively; meanwhile, the output of dairy products of enterprises above designated size increased by 5.8% in the first half of the year, and the milk CPI in June decreased by 1.7%.
The industry's supply and demand has improved compared with the trough period, but product unit prices, terminal discounts and consumption structure are still weak.
II
External Assets Amplify Profit Fluctuations
Yili and Mengniu seem to have opposite profit trends, but the reported profits of both are significantly affected by mergers, acquisitions and investment assets outside their core brands.
Yili's problems are concentrated in Ausnutria Dairy.
In the first half of the year, Yili's asset impairment losses increased from 337 million yuan to 2.456 billion yuan, including 1.547 billion yuan of goodwill impairment on Ausnutria; the group's inventory impairment losses reached 908 million yuan.
Behind the impairment is the renewed weakening of Ausnutria's operations. In the first half of the year, Ausnutria's revenue reached 3.11 billion yuan, down about 20% year on year, turning from a profit of 181 million yuan to a loss of 726 million yuan, while promoting inventory clearance, SKU reduction and supply chain adjustment.
This is not the first time that Ausnutria has dragged down Yili. At the end of 2024, Yili had already recorded 3.037 billion yuan of goodwill impairment on Ausnutria.
The weakness of Ausnutria cannot represent Yili's entire milk powder business.
In the first half of the year, Yili's milk powder and dairy products revenue reached about 16.8 billion yuan; roughly estimated based on public data, the revenue of related businesses excluding Ausnutria increased by about 8%, of which Jinlinguan achieved mid-to-high single-digit growth.
However, this part of growth mostly comes from the increase of market share in the existing stock market. Song Liang believes that the contraction of infant formula demand, superimposed with the ARA raw material turmoil at the beginning of the year, has increased the cost of consumer communication and channel maintenance.
"Yili's milk powder business has a larger scale, so it is more significantly disturbed by related expenses, which is also a marginal factor for its weaker profit performance than Mengniu," said Song Liang.
The divergence in the profit performance of the two companies is also related to the different stages of impairment and restoration of their external assets.
In 2024, Mengniu concentrated on confirming the impairment of assets such as Bellamy's and Modern Dairy, and its net profit attributable to shareholders dropped to 105 million yuan that year, of which the net impact of Bellamy's related impairment was 3.981 billion yuan.
In 2026, some assets began to recover. In the first half of the year, Mengniu's share of the results of associates turned from a loss of 585 million yuan to a profit of 40 million yuan, and the turnaround of Modern Dairy was the main contributor; Bellamy's revenue increased by more than 60%, and cheese business revenue increased by more than 30%.
However, the current scale of these businesses is still limited. Liquid milk still accounts for about three quarters of Mengniu's revenue, and milk powder and cheese together 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.
III
Profit Inflection Point Has Not Arrived
The primary variable that determines the profit trend of the industry in the next stage is still the supply and demand of raw milk.
The culling of dairy cows in the upstream has lasted for two years. Citing monitoring data from the Ministry of Agriculture and Rural Affairs, Yili's management said that as of the end of June 2026, the domestic dairy cow inventory decreased by 4.3% year on year, and the number of farmers decreased by more than 20% year on year, and the supply contraction is gradually transmitting to the price side.
The contracted milk price has bottomed out and stabilized in the first half of the year, and the market bulk milk price has started to rise. 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%, turning the year-on-year growth rate from negative to positive.
Song Liang believes that after four to five years of downward cycle, the raw milk price is approaching the inflection point. With the rise of milk price, the cost advantage of white-label, OEM and private domain brands that rely on low-price raw materials will be weakened, and part of consumer demand is expected to re-concentrate on mainstream brands such as Yili and Mengniu, and the market position of leading players may be further consolidated.
The two companies have basically the same judgment on the supply and demand inflection point.
Yili's management expects that the milk price is expected to rise steadily year on year in the second half of 2026, and the industry supply and demand may enter a clearer stage of balance and moderate price increase by 2027.
Mengniu's management has a relatively similar judgment, believing that the supply and demand of raw milk is tending to balance, and the industry price competition is expected to ease in the second half of the year.
The second variable is whether the growth structure can shift from driving revenue to driving profit.
The two leading giants in the dairy industry ultimately need to shift from homogenized, low value-added products such as basic plain milk to functional nutrition, cheese, fresh milk, professional catering dairy products and deep processing of dairy products.
Only by increasing the output value of per kilogram of raw milk can enterprises reduce their dependence on the sales volume and price competition of basic liquid milk.
Lactoferrin, casein and desalted whey powder are more representative directions among them. These raw materials can be used in infant formula, sports nutrition, medical food for special medical purposes and functional nutrition products, with generally higher technical thresholds and unit value than basic liquid milk.
At present, relevant high-end raw materials in China still rely heavily on imports. Domestic substitution can not only digest raw milk, but also increase the value of processed by-products such as whey.
The two companies have moved from the planning stage to the production line implementation stage, but their progress varies.
Yili put into operation in March 2026 a 10,000-ton annual production line of original mozzarella cheese, forming an independent production capacity from core raw materials to terminal cheese products; at the same time, it introduced China's first full electrodialysis D90 desalted whey powder production line, with a desalination rate of 90%.
Its Ningxia professional raw material base was also 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 mass production. After the production line of its core raw material brand "Milk Cube" was put into operation, three types of raw materials including lactoferrin, membrane-separated casein and D90 desalted whey powder have achieved independent domestic mass production.
In the first half of this year, Mengniu also launched the professional dairy brand MnmpX, guiding related products to markets such as infant formula, functional nutrition and professional catering.
From "selling more" to "earning more", there are still three barriers to cross: terminal prices, growth structure and historical M&A assets.
This article is from the WeChat official account "All-Weather Tech" (ID: iawtmt), written by Liu Yichen, published with authorization from 36Kr.