Mengniu Earnings: Operating Margin Expansion Is In-Line, but Net Profit Misses Expectations

Narrow-moat Mengniu reported 2023 results that trailed our expectations across revenue and net profit. Although operating margin expanded by 40 basis points year on year and was consistent with management’s guidance, net profit fell 9%, dragged down by a decline in nonoperating income. We reduced 2024-28 net profit projections by 5%-15% to account for impairment costs of raw milk in 2024 and lower nonoperating income in the next few years. Consequently, we lowered our fair value estimate to HKD 27 per share from HKD 30, which implies 19 times 2024 P/E, 11 times EV/EBITDA, and a 2.3% dividend yield.