Company Reports

Mengniu's revenue grew 8% year over year in the first half, and net profit rose 16%. Excluding an income tax adjustment, net profit would have increased 32%.

We review our 2026 forecasts for Mengniu ahead of its interim results in August.

Mengniu's 2025 net income of CNY 1.55 billion was dragged by roughly CNY 2.32 billion in impairment losses associated with idle production facilities and financial assets. Operating margin fell 20 basis points year on year to 8%.

Mengniu is the second-largest dairy producer in China, with the majority of its revenue derived from the liquid milk business; ice cream and cheese are smaller segments. After a management change in 2016, Mengniu has restructured its organization and distribution channel, which in our view has rejuvenated its liquid milk business and resulted in rebounding profit growth. The company’s premium shelf-stable milk lineup, Deluxe, has been the number-one brand in China since 2020, which we think reflects improving channel execution and effective portfolio construction. Mengniu has currently built out a competitive liquid milk portfolio spanning shelf-stable, yogurt, and chilled products.

Mengniu continued to face headwinds in liquid milk demand due to soft consumer sentiment, alongside subdued raw milk prices, in the second half of 2025.

Mengniu is the second-largest dairy producer in China, with the majority of its revenue derived from the liquid milk business; ice cream and cheese are smaller segments. After a management change in 2016, Mengniu has restructured its organization and distribution channel, which in our view has rejuvenated its liquid milk business and resulted in rebounding profit growth. The company’s premium shelf-stable milk lineup, Deluxe, has been the number-one brand in China since 2020, which we think reflects improving channel execution and effective portfolio construction. Mengniu has currently built out a competitive liquid milk portfolio spanning shelf-stable, yogurt, and chilled products.

China Mengniu Dairy reported first-half 2025 results, with sales falling 7% year on year. Operating profit rose by 13% due to lower raw milk prices and operating cost controls. However, net profit declined by 16% due to impairments in raw milk and losses from upstream dairy subsidiaries.

Mengniu is the second-largest dairy producer in China, with the majority of its revenue derived from the liquid milk business; ice cream and cheese are smaller segments. After a management change in 2016, Mengniu has restructured its organization and distribution channel, which in our view has rejuvenated its liquid milk business and resulted in rebounding profit growth. The company’s premium shelf-stable milk lineup, Deluxe, has been the number-one brand in China since 2020, which we think reflects improving channel execution and effective portfolio construction. Mengniu has currently built out a competitive liquid milk portfolio spanning shelf-stable, yogurt, and chilled products.

We have updated our 2025 revenue and net income forecasts for China Mengniu Dairy ahead of the release of its interim results.

Mengniu is the second-largest dairy producer in China, with the majority of its revenue derived from the liquid milk business; ice cream and cheese are smaller segments. After a management change in 2016, Mengniu has restructured its organization and distribution channel, which in our view has rejuvenated its liquid milk business and resulted in rebounding profit growth. The company’s premium shelf-stable milk lineup, Deluxe, has been the number-one brand in China since 2020, which we think reflects improving channel execution and effective portfolio construction. Mengniu has currently built out a competitive liquid milk portfolio spanning shelf-stable, yogurt, and chilled products.

Mengniu is the second-largest dairy producer in China, with the majority of its revenue derived from the liquid milk business; ice cream and cheese are smaller segments. After a management change in 2016, Mengniu has restructured its organization and distribution channel, which in our view has rejuvenated its liquid milk business and resulted in rebounding profit growth. The company’s premium shelf-stable milk lineup, Deluxe, has been the number-one brand in China since 2020, which we think reflects improving channel execution and effective portfolio construction. Mengniu has currently built out a competitive liquid milk portfolio spanning shelf-stable, yogurt, and chilled products.

Narrow-moat China Mengniu’s 2024 net profit of CNY 105 million was in line with its profit warning. Revenue slightly missed our estimate, but gross margin exceeded expectations, thanks to an improved product mix and better efficiencies across the liquid milk and cheese segments. We think Mengniu would press ahead with cost savings and strive to improve the product mix in its nonliquid milk segments over the next five years. Hence, our 2025-28 operating margin forecasts increase by 1-1.9 percentage points, leading to 2%-13% higher net income projections over the same period. Consequently, we lift our fair value estimate by 7% to HKD 22.50 per share. This implies 17 times 2025 price/earnings and 10 times enterprise value/EBITDA. We see the shares as fairly valued.

We review our 2024 earnings estimates for wide-moat Yili and narrow-moat Mengniu ahead of their results announcements in late April and late March, respectively. We maintain our forecasts and fair value estimate of CNY 33 per share for Yili. While we lowered Mengniu’s 2024 net profit estimate following the company’s profit alert due to impairment loss and share of losses in the upstream dairy subsidiaries, our fair value estimate of HKD 21 remains unchanged, as these losses are mainly noncash items. Although we believe both companies’ shares are undervalued, we prefer Yili over Mengniu given the former’s distribution strength in lower-tier cities and better execution in the infant milk formula segment. We also think the estimated 2025 dividend yield of over 4% at Yili’s current share price is decent.

Mengniu is the second-largest dairy producer in China, with the majority of its revenue derived from the liquid milk business; ice cream and cheese are smaller segments. After a management change in 2016, Mengniu has restructured its organization and distribution channel, which in our view has rejuvenated its liquid milk business and resulted in rebounding profit growth. The company’s premium shelf-stable milk lineup, Deluxe, has been the number-one brand in China since 2020, which we think reflects improving channel execution and effective portfolio construction. Mengniu has currently built out a competitive liquid milk portfolio spanning shelf-stable, yogurt, and chilled products.

Mengniu is the second-largest dairy producer in China, with the majority of its revenue derived from the liquid milk business; ice cream and cheese are smaller segments. After a management change in 2016, Mengniu has restructured its organization and distribution channel, which in our view has rejuvenated its liquid milk business and resulted in rebounding profit growth. The company’s premium shelf-stable milk lineup, Deluxe, has been the number-one brand in China since 2020, which we think reflects improving channel execution and effective portfolio construction. Mengniu has currently built out a competitive liquid milk portfolio spanning shelf-stable, yogurt, and chilled products.

We are increasing the Morningstar Uncertainty Rating for narrow-moat-rated China Mengniu Dairy to High from Medium. We believe that the updated Uncertainty Rating better reflects its risk profile and competitive positioning within the industry, which is currently plagued by excess supply of raw milk and competition from small brands. We also think demand pressure persists for premium ultra-high-temperature liquid milk and yogurt due to the squeezed pockets of consumers.

Mengniu is the second-largest dairy producer in China, with the majority of its revenue derived from the liquid milk business; ice cream and cheese are smaller segments. After a management change in 2016, Mengniu has restructured its organization and distribution channel, which in our view has rejuvenated its liquid milk business and resulted in rebounding profit growth. The company’s premium shelf-stable milk lineup, Deluxe, has been the number-one brand in China since 2020, which we think reflects improving channel execution and effective portfolio construction. Mengniu has currently built out a competitive liquid milk portfolio spanning shelf-stable, yogurt, and chilled products.

We review our 2024-25 earnings projections for narrow-moat China Mengniu Dairy and reduce our net income forecasts by 1%-6% to account for continued soft demand in the liquid milk segment. While the lower cost of raw milk would be a tailwind to margins, we expect impairment of raw milk inventory and higher interest expenses due to increased short-term borrowings to remain a drag on net margins through 2025. But these earnings adjustments are insufficient to alter our fair value estimate of HKD 21 per share, due to largely unchanged long-term forecasts. We see shares as undervalued and believe that excess supplies of raw milk and competition from small brands will ease over the long run, while Mengniu could leverage its extensive distribution to grow sales and earnings.

Narrow-moat China Mengniu Dairy’s first-half revenue and net profit trailed our estimates. Sluggish demand was seen in all major segments, with total revenue falling 13% and net profit falling 17% year on year. Operating margin, however, improved by 60 basis points year on year to 7% due to favorable raw milk prices. While the top-line decline was notable, we think the company made the right move to control promotional expenses and protect profitability amid falling volumes, especially for its liquid milk business. We expect soft demand in Mengniu's major segments to persist through the second half and hence cut our 2024 net profit estimate by 18%. We also lowered our 2025-28 net profit forecasts by 12%-15%. As a result, our fair value estimate is reduced to HKD 21 per share from HKD 27, implying 18 times 2024 price/earnings and 12 times enterprise value/EBITDA. Management announced a share-buyback plan of no more than CNY 2 billion over the next 12 months and a dividend payout ratio of 50% for 2024-25. We think the shares are currently undervalued, supported by a 2024 dividend yield of 4.4%.

Mengniu is the second-largest dairy producer in China, with the majority of its revenue derived from the liquid milk business; ice cream and cheese are smaller segments. After a management change in 2016, Mengniu has restructured its organization and distribution channel, which in our view has rejuvenated its liquid milk business and resulted in rebounding profit growth. The company’s premium shelf-stable milk lineup, Deluxe, has been the number-one brand in China since 2020, which we think reflects improving channel execution and effective portfolio construction. Mengniu has currently built out a competitive liquid milk portfolio spanning shelf-stable, yogurt, and chilled products.