Mengniu Dairy (2319 HK) Summary
Core Content
Mengniu Dairy is being analyzed as a potential investment opportunity within the context of an early-stage consumption-led recovery in China. The report highlights that while the dairy sector's overall outlook is considered mediocre, Mengniu may benefit from a valuation mismatch compared to its peers in the beer and cosmetics segments, which have already seen re-rating due to reopening sentiment. The stock is currently rated BUY, with a target price of HK$52.0, representing a +40.9% upside from the current price of HK$36.9.
Key Financial Highlights
- Revenue Growth: Expected to grow at 6.7% YoY for 2H22, with a -5.5% HoH decline. The 3Q performance is anticipated to be strong, with 4Q likely to be weaker due to minimal lockdown impact in November.
- Gross Margin: Projected to decline to 34.8% YoY and HoH due to downgrading mix and rising raw material costs, but is expected to stabilize and improve in 1H23E.
- EBIT Margin: Expected to rise to 7.1% in 2H22, an increase of 1.1pp YoY and 0.8pp HoH.
- Net Profit: Revised downward by 2.9% for 2H22, and further reduced by 3.5% and 4.9% for 2023E and 2024E, respectively.
- EPS: Revised to 1.49, 1.71, and 2.00 for FY22E, FY23E, and FY24E, respectively, compared to 1.53, 1.79, and 2.10 in previous estimates.
Valuation
- P/E Ratio: The new target price is based on a 26.0x P/E ratio, rolled forward to the end of 2023, aligning with its long-term average.
- P/B Ratio: Expected to decline from 2.9 in FY22E to 2.3 in FY24E.
- Dividend Yield: Projected to increase from 1.5% in FY22E to 2.0% in FY24E.
- ROE: Expected to rise from 9.5% in FY20A to 13.7% in FY24E.
Earnings Summary
| FY |
Revenue (RMB mn) |
YoY Growth (%) |
Net Income (RMB mn) |
YoY Growth (%) |
EPS (RMB) |
YoY Growth (%) |
| 20A |
76,035 |
-3.8% |
3,525 |
-7.6% |
0.9 |
-7.6% |
| 21A |
88,141 |
+15.9% |
5,026 |
+42.0% |
1.3 |
+42.0% |
| 22E |
92,802 |
+5.3% |
5,898 |
+17.3% |
1.5 |
+17.3% |
| 23E |
102,393 |
+10.3% |
6,771 |
+14.8% |
1.7 |
+14.8% |
| 24E |
114,048 |
+11.4% |
7,938 |
+17.2% |
2.0 |
+17.2% |
Consensus Comparison
| FY |
CMBIGM Estimate |
Consensus |
Diff (%) |
| 22E |
92,802 |
93,531 |
-0.8% |
| 23E |
102,393 |
106,576 |
-3.9% |
| 24E |
114,048 |
116,048 |
-1.7% |
Financial Ratios
| Ratio |
FY20A |
FY21A |
FY22E |
FY23E |
FY24E |
| Gross Margin |
37.7% |
36.7% |
35.7% |
36.2% |
36.7% |
| Operating Margin |
4.4% |
5.8% |
7.0% |
7.3% |
7.7% |
| Pre-tax Margin |
5.5% |
6.7% |
7.8% |
8.1% |
8.5% |
| Net Margin |
4.6% |
5.7% |
6.4% |
6.6% |
7.0% |
| ROE |
9.5% |
12.0% |
12.6% |
13.0% |
13.7% |
| Dividend Yield |
N/A |
N/A |
1.5% |
1.7% |
2.0% |
| Net Debt to Equity |
19.4% |
28.2% |
20.9% |
8.6% |
- |
Shareholding Structure
- COFCO Dairy Investment Co.: 13.92%
- Gendar Ltd: 7.49%
- Brown Brothers Harri. & Co.: 7.29%
Stock Performance
| Period |
Absolute Return (%) |
Relative Return (%) |
| 1-mth |
-2.8% |
+3.8% |
| 3-mth |
+11.3% |
-2.7% |
| 6-mth |
+9.5% |
+5.0% |
Market Position
- CMBIGM Ratings: BUY
- Target Price: HK$52.0
- Current Price: HK$36.9
- Upside Potential: +40.9%
Analyst Note
- The report emphasizes that the stock may benefit from a near-term catch-up due to a valuation mismatch and revised earnings expectations.
- The analyst maintains that the structural picks remain unchanged, and the focus is on short-term trading opportunities rather than a shift in long-term investment preference.
Related Reports
- Kweichow Moutai (600519 CH) – Proxy of China's consumption-led recovery – 6 Feb 2023
- CR Beer (291 HK) – Another positive year for 2023; our preferred pick for China's reopening – 22 Jan 2023
- China Feihe (6186 HK) – Could remain a beta play when birth rate only starts inflecting post 3Q – 3 Jan 2023
Disclaimer
This report is not investment advice and should not be construed as an offer or solicitation to buy or sell any security. The information is based on publicly available data and estimates, and may be subject to change. CMBIGM is not liable for any losses incurred from reliance on this information. Investors are encouraged to consult with a professional financial advisor.
