Key takeaway

This is the second report in the Sanyuan reform series. In this report, we conduct cross comparisons through a historical review and the reform path of Yanjing Brewery to analyze the feasibility of this round of state-owned enterprise reform at Sanyuan. There is substantial room for operational improvement. Historically, Sanyuan carried out multiple rounds of proactive expansion and enlarged its footprint through acquisitions, but operational results were weak and the company continued to experience “revenue growth without profit growth.” In the current reform, Sanyuan has strengthened profit-oriented performance assessments. Improving the profitability of its core business will be a key focus going forward. Looking at the reform path of Yanjing, measures such as organizational restructuring, a flagship product strategy, prioritizing its core market, and diversifying channel structures helped upgrade brand strength and enhance profitability. With a similar reform path, we expect the effects of Sanyuan’s reform to gradually emerge in the future.

Thesis

A historical review of Sanyuan: Proactive expansion with revenue growth but weak profit, while maintaining quality to build reputation

Before 2009, during the rapid development of the dairy industry, Sanyuan responded relatively slowly to market competition. It missed the window for expansion while balancing the entry of competitors and its own scale expansion, particularly when competing with national leaders such as Yili and Mengniu. After 2009, the company began expanding its business footprint through acquisitions. It first acquired distressed assets such as the core assets of Sanlu and Taizi Milk, and later introduced Fosun as a strategic investor, initiating diversified expansion into ice cream, spreads, and dairy farming. However, the company achieved limited results in integrating its acquired businesses, and its performance continued to show a pattern of “revenue growth without profit growth.” Throughout its development, Sanyuan has adhered to product quality. It emerged largely unscathed from dairy industry crises such as the melamine incident, and its brand image as a trusted milk provider has gradually become recognized by consumers. Since 2023, the company has prompt ly adjusted its strategy and launched the reform initiative of “revenue with profit and profit with cash flow.” Losses in the core business have continued to narrow, and the company is entering a new cycle of profitability recovery and value reshaping.

Viewing Sanyuan through the lens of Yanjing’s reform: Lessons from successful paths support optimism for Sanyuan’s reform

Sanyuan and Yanjing Brewery are both listed companies ultimately controlled by the Beijing SASAC. Yanjing Brewery, under Beijing Enterprises, launched its “second startup” initiative in 2022 and achieved significant results in flagship product growth, operational efficiency improvement, and margin enhancement, with the net profit margin attributable to shareholders of the parent company rising from1.91% in 2022 to 10.95%. From the perspective of the reform path, it shows a high degree of similarity with Sanyuan. Referencing this successful case and looking ahead to Sanyuan’s reform direction, we are optimistic that Sanyuan’s reform will succeed in the future. ① Organizational structure:A strong leadership team took charge, disposed of inefficient assets, and optimized personnel structure and incentive mechanisms, leading to clear internal efficiency gains. ② Building flagship products: Streamline the overly complex SKU portfolio and launch core flagship products. Yanjing U8 has already been developed into a nationwide flagship product, while Sanyuan has introduced its strategic Beijing series products since 2025.③ From core base to other regions: Start from the stronghold, first consolidate core advantages, and then gradually expand to other regions. Yanjing U8 first focused on deepening its presence in Greater Beijing, Inner Mongolia and Guangxi, then piloted expansion into other markets through the “Hundred Counties Project”. In 2024, it stepped up the development of growth markets and accelerated expansion in weaker regional markets. In 2025, Sanyuan proposed a strategy of “focusing on Beijing and further penetrating the chilled segment”. The priority of reinforcing its strengths in the Beijing market and building it into a brand stronghold has increased significantly, while the company has substantially scaled back inefficient regions outside Beijing. ④ Address channel weaknesses: Supplement and improve weaker channels and consumption scenarios to enhance product coverage. Yanjing started with the foodservice channel, and gradually expanded into night-time venues, off-premise consumption and other scenarios by adding more product formats and canned offerings. Sanyuan has gradually strengthened its presence in modern channels in Beijing, established strategic cooperation with JD.com and Tmall, and is progressively introducing strategic flagship products into convenience store systems.

Differences between Sanyuan’s current reform and past reforms:

1. Higher-ranking chairman, stronger reform momentum, and a general manager with extensive FMCG operating experience.

Mr. Yuan, general manager of Shounong, concurrently serves as chairman of Sanyuan and adheres to the operating philosophy of “revenue with profit and profit with cash flow.” Shounong has more than 20 secondary subsidiaries, yet Mr. Yuan concurrently serves only as chairman of Sanyuan. General manager Mr. Chen is young and capable. He previously served as assistant to the president of Feihe and general manager of its health business company, as well as general manager of the strategy and innovation department of JD’s omni-channel supermarket business group. He is familiar with the dairy industry and has abundant resources in new retail channels. The company has reshaped its core leadership team, now mainly composed of executives born in the 1980s.

2. Reform strategy adjustment: Focus on Beijing + deepen presence in low temperature dairy, significantly scale back loss making businesses outside Beijing, aligning with Sanyuan’s brand advantages and supply chain strengths. In 2022, Sanyuan attempted to promote the “Ailiyou” milk powder sub brand and the “Jizhi” high end sub brand, while increasing expansion efforts in non local markets, but later faced greater industry downturn pressure and other factors, resulting in unsatisfactory outcomes. The company is now focusing on Beijing, building flagship low temperature products and strengthening Beijingfeatured offerings. In September 2025, it launched the first flagship product in the low temperature category, “Sanyuan Beijing Fresh Milk.” In January 2026, the second strategic flagship product, “Sanyuan Beijing Yogurt,” made its grand debut on the JD.com platform. During the Spring Festival, the company launched the “City Full of Sincerity” Beijing limited gift box, which also belongs to the key “Beijing series” products cultivated by Sanyuan. In 2025, the company relaunched the classic IP “Beijing Milk Company,” reviving Beijing’s brand memory. 3. The industry is currently at its trough and is expected to gradually enter a recovery phase, which should allow Sanyuan’s reform momentum to be more fully unleashed.

Which Sanyuan businesses may be undervalued:

1. Baxi ice cream has strong brand positioning and profitability, and still holds growth potential. The company has introduced external executives and will launch multiple new products in 2026 to drive renewed growth for Baxi. 2. Beijing McDonald’s covers three regions: Beijing, Hebei, and Guangdong, with the number of stores maintaining roughly double digit steady growth. Sanyuan has held a stake in Beijing McDonald’s for more than 30 years, with stable profitability and further room for expansion in lower tier markets. 3. Home milk delivery has entry barriers and contributes stable base profit. Earnings forecast and investment recommendation: Revenue is expected to reach RMB6.562bn/RMB7.026bn/RMB7.499bn in 2026–2028, while net profit attributable to shareholders of the parent company is expected to reach RMB380mn/RMB491mn/RMB569mn. We assign a “buy” rating. We believe Sanyuan’s reform inflection point has emerged and remain firmly optimistic about the revival of the Beijing liquid milk leader.

Risks:Food safety risks; risk of continued decline in raw milk prices;competition easing less than market expectations