20230331-招银国际-蒙牛乳业-02319.HK-Subpar_growth_target_but_good_corporate_governance_practice_could_stabilize_shareholders__return_4页_1mb

Mengniu Dairy (2319 HK) Company Update Summary

Core Content

This report provides an updated analysis of Mengniu Dairy (2319 HK), focusing on its financial performance, growth outlook, and valuation. CMB International Global Markets maintains a BUY rating with a target price of HK$40.0, reflecting a +22.7% upside from the current price of HK$32.6.

Main Points

2023 Outlook

• Revenue Growth: Management expects mid-to-high single-digit growth for 2023 excluding Milkground (Mengniu holds 35% of the latter and began consolidation from December 2022). This is slightly below expectations.
• Growth Drag: The milk powder business continues to be a drag, leading to a HSD revenue decline.
• Remaining Businesses: The liquid milk and ice cream segments are projected to grow at 7% and 25%, respectively.
• GPM Expectations: Gross profit margin expansion is unlikely due to stable input prices and slower product mix upgrades.
• Net Margin Expansion: The only potential driver for a 0.3-0.5pp net margin expansion is operation cost savings, particularly in administrative costs returning to pre-COVID levels.
• Selling Expense: Selling expenses are expected to rise to 24-26% of 2023E revenue, partially offsetting cost savings.

Share Buyback

• Mengniu has reaffirmed its intention to buy back shares when appropriate.
• With current production capacity sufficient for 3-5 years of volume expansion, the capex cycle is likely peaked-out.
• A 10% increase in OCF to RMB8.3bn in 2022 supports further initiatives to enhance shareholders' returns.

Earnings Change

• Revenue estimates for 2023 and 2024 have been cut by 2% and 2.7%, respectively.
• Gross margin has been trimmed by 1.1pp.
• This results in an 11% cut in net profit estimates for both years.
• Current forecasts are 9% below consensus but within management guidance.

Valuation

• New Target Price (TP): Based on a 22.0x end-23E P/E, which is -1 standard deviation below long-term average.
• Valuation Context: Mengniu's decelerating growth suggests a lower valuation range compared to F&B peers, which are more sensitive to China's reopening.
• Comparison: Similar valuation methodology was applied to Feihe.
• Market Position: Shares are at a historical low, with negatives partially priced-in, and good corporate governance could help stabilize shareholders' returns.

Financial Summary

Revenue (RMB mn)

• FY20A: 76,035
• FY21A: 88,141
• FY22E: 92,593
• FY23E: 100,354
• FY24E: 111,018

YoY Growth (%)

• FY20A: -3.8
• FY21A: +15.9
• FY22E: +5.1
• FY23E: +8.4
• FY24E: +10.6

Net Income (RMB mn)

• FY20A: 3,525
• FY21A: 5,026
• FY22E: 5,303
• FY23E: 6,022
• FY24E: 7,108

EPS (RMB)

• FY20A: 0.9
• FY21A: 1.3
• FY22E: 1.3
• FY23E: 1.5
• FY24E: 1.8

YoY Growth (%)

• FY20A: -7.6
• FY21A: +42.0
• FY22E: +5.5
• FY23E: +13.6
• FY24E: +18.0

Consensus EPS (RMB)

• FY22E: n.a
• FY23E: n.a
• FY24E: 2.1

P/E (x)

• FY22E: 20.3
• FY23E: 17.9
• FY24E: 15.2

P/B (x)

• FY22E: 2.7
• FY23E: 2.4
• FY24E: 2.2

Dividend Yield (%)

• FY22E: 1.5
• FY23E: 1.7
• FY24E: 2.0

ROE (%)

• FY20A: 9.5
• FY21A: 12.0
• FY22E: 10.6
• FY23E: 11.1
• FY24E: 12.0

Net Gearing (%)

• FY20A: 19.4
• FY21A: 28.2
• FY22E: 44.8
• FY23E: 37.4
• FY24E: 25.3

Key Ratios

Conclusion

Mengniu Dairy faces a subpar growth target but good corporate governance may help stabilize shareholders' returns. Despite revenue cuts and margin compression, the company remains attractive for buybacks and cost optimization. The target price reflects a discounted valuation relative to the long-term average, and the BUY rating is maintained due to potential for margin expansion and dividend growth.