UOB Kay Hian Private Limited
Date of Report: Friday, 29 August 2025
China Mengniu Dairy: Navigating Headwinds with Margin Resilience and Strategic Focus
Overview: China Mengniu Dairy’s Results and Outlook
China Mengniu Dairy (2319 HK), a leading player in China’s dairy sector, continues to demonstrate operational resilience amid revenue headwinds. Despite a challenging demand environment, the company’s focus on cost control and margin management has shone through its latest results. UOB Kay Hian maintains a BUY rating on Mengniu, albeit with a slightly reduced target price, reflecting both near-term challenges and confidence in the company’s long-term strategic positioning.
Company Snapshot and Shareholder Structure
Sector: Consumer Staples
Core Brands: MENGNIU, Milk Deluxe, Just Yoghurt, Bellamy’s
Product Segments: Liquid milk, ice cream, milk formula, cheese
Market Cap (HK$): 61,835.7 million (US$7,932.8 million)
Shares Outstanding: 3,903.8 million
Major Shareholder: COFCO Corp (24.14%)
52-Week Price Range: HK$22.55 / HK$11.82
Current Share Price: HK$15.84
Target Price: HK$21.70 (Down from HK$23.00)
Potential Upside: +37.0%
FY25 NAV/Share: RMB 11.06
FY25 Net Debt/Share: RMB 2.32
Key Takeaways from 1H25 Financial Results
Mengniu’s first-half 2025 results reflected the ongoing demand softness but highlighted operating margin improvement due to cost management and lower raw milk prices. The company’s net profit came under pressure from higher interest expenses and associate losses, but core operational performance remained robust.
| Metric |
1H25 |
2H24 |
1H24 |
YoY Change |
HoH Change |
| Total Revenue (RMB m) |
41,567 |
44,004 |
44,671 |
-6.9% |
-5.5% |
| Gross Profit (RMB m) |
17,352 |
17,106 |
17,985 |
-3.5% |
+1.4% |
| Gross Margin (%) |
41.7 |
38.9 |
40.3 |
+1.5ppt |
+2.9ppt |
| Operating Profit (RMB m) |
3,538 |
4,137 |
3,119 |
+13.4% |
-14.5% |
| Operating Margin (%) |
8.5 |
9.4 |
7.0 |
+1.5ppt |
-0.9ppt |
| Net Profit Attributable (RMB m) |
2,046 |
1,989 |
2,446 |
-16.4% |
+2.8% |
Segment Performance: Revenue and Margins Breakdown
The company’s performance by product segment revealed notable divergences:
| Product Segment |
1H25 Revenue (RMB m) |
1H24 Revenue (RMB m) |
YoY Change (%) |
1H25 Op. Margin (%) |
1H24 Op. Margin (%) |
YoY Change (ppt) |
| Liquid Milk |
32,192 |
36,262 |
-11.2 |
8.2 |
7.0 |
+1.2 |
| Ice Cream |
3,879 |
3,371 |
+15.0 |
15.8 |
11.4 |
+4.4 |
| Milk Powder |
1,676 |
1,635 |
+2.5 |
5.9 |
1.4 |
+4.5 |
| Cheese |
2,374 |
2,114 |
+12.3 |
9.7 |
5.6 |
+4.1 |
| Others |
1,447 |
1,288 |
+12.4 |
-9.2 |
7.4 |
-16.7 |
Key observations include:
Liquid milk, Mengniu’s largest segment, saw an 11% revenue decline, particularly in the room temperature category.
The fresh milk segment within liquid milk grew by 20%.
Ice cream and cheese segments posted double-digit revenue and margin improvements.
Milk powder and other products also saw growth, but “others” swung into negative margins.
Strategic Insights and Management Guidance
- Revenue Guidance: Management expects a mid-to-high single-digit revenue decline in 2025, with 2H25’s year-on-year drop narrowing compared to 1H25.
- Operating Margin: Targeting a stable margin for 2025. Longer-term, aiming for 30–50 basis points expansion annually over the next three years, mainly via reduced selling and distribution costs.
- Raw Milk Dynamics: Management anticipates a longer period before raw milk supply and demand reach equilibrium, likely extending into next year.
- Dividends & Buybacks: Dividend payout is expected to remain steady, with share buybacks in the next 12 months at least matching the HK\$500 million repurchased from September 2024 to July 2025.
Earnings Revision and Valuation
2025/26 revenue forecasts cut by 7%/8% to reflect weak liquid milk sales.
Gross margin estimates raised by 0.9ppt/1.0ppt for lower raw milk costs.
Selling and distribution expense estimates increased by 1.0ppt/0.9ppt.
2025/26 earnings forecasts reduced by 12%/4% after including China Modern Dairy losses.
Updated target price: HK$21.70 (implying 20.2x 2025F PE and 15.7x 2026F PE). The stock trades at 14.5x 2025F PE and 11.2x 2026F PE, indicating undervaluation relative to the target.
Detailed Financial Forecasts (2024–2027)
| Year |
2024 |
2025F |
2026F |
2027F |
| Net Turnover (RMB m) |
88,675 |
82,819 |
84,824 |
87,052 |
| EBITDA (RMB m) |
10,664 |
10,179 |
10,433 |
10,678 |
| Operating Profit (RMB m) |
7,257 |
6,749 |
7,138 |
7,500 |
| Net Profit (Adj., RMB m) |
4,435 |
3,939 |
5,072 |
5,535 |
| EPS (Fen) |
112.9 |
100.1 |
128.9 |
140.7 |
| PE (x) |
12.8 |
14.5 |
11.2 |
10.3 |
| Dividend Yield (%) |
3.5 |
3.5 |
4.4 |
4.9 |
| Net Margin (%) |
5.0 |
4.8 |
6.0 |
6.4 |
| Net Debt/(Cash) to Equity (%) |
-14.5 |
-18.7 |
-25.8 |
-31.6 |
| ROE (%) |
10.3 |
9.3 |
11.3 |
11.5 |
Key Operational and Financial Metrics
- EBITDA Margin: Stable at 12.0–12.3% through 2027F
- Net Margin: Expected to rise from 4.8% (2025F) to 6.4% (2027F)
- ROE: Projected to recover to 11.5% by 2027F
- Debt: Net debt/(cash) to equity ratio improving, reaching -31.6% by 2027F
- Dividend Payout: Consistent, rising dividend yield forecast
Cash Flow and Balance Sheet Highlights
| Metric |
2024 |
2025F |
2026F |
2027F |
| Operating Cashflow (RMB m) |
8,332 |
6,490 |
8,641 |
9,038 |
| Capex (Growth, RMB m) |
-3,475 |
-2,500 |
-2,500 |
-2,500 |
| Dividend Payments (RMB m) |
-1,940 |
-1,994 |
-1,970 |
-2,536 |
| Ending Cash Balance (RMB m) |
6,199 |
12,973 |
17,646 |
22,101 |
Conclusion: Investment Case and Forward Look
China Mengniu Dairy remains a top-tier player in China’s dairy market, with a resilient business model and a clear focus on margin improvement and shareholder returns. While revenue headwinds persist—especially in liquid milk—the company’s commitment to cost optimization, steady dividends, and continued share buybacks underscores confidence in long-term value creation. The current valuation offers a substantial upside for investors looking beyond short-term turbulence toward Mengniu’s strategic execution and recovery potential.
Broker: UOB Kay Hian | Date: 29 August 2025
