China Mengniu Dairy Offered Cautious Guide Amid Gradual Demand Recovery; Retain FVE at HKD 39

Narrow-moat China Mengniu Dairy reported 2022 results that met Refinitiv consensus and our estimates on the top line and moderately outperformed our expectations on operating margin. But the stock reacted negatively following earnings likely due to the below-consensus top-line guidance for 2023, which may have caused concern about the growth outlook of its liquid milk business. We think there is moderate upside to the company's revenue guidance and its operating margin target should be achievable. As a result, we maintain our fair value estimate at HKD 39 per share and think the shares remain undervalued, with an implied 2023 P/E of 17 times (below historical average of 25 times).