20220401-招银国际-蒙牛乳业-02319.HK-Raw_milk_price_remained_a_lingering_drag_to_2H21_GPM__2022E_guidance_maintained_2页_456kb

Mengniu Dairy (2319 HK) Summary

Core Content

Mengniu Dairy, a leading player in China's consumer staples sector, reported its 2H21 financial results, showing a flat recurring net profit of RMB2bn compared to the previous year. Despite a 10% revenue growth to RMB42bn, the gross margin (GPM) remained a challenge at 35.1%, slightly below the expected 36.1% due to high raw milk costs. The company's management indicated that raw milk price pressures have been easing, though they still anticipate price increases in 2022.

Key Financial Highlights

• Revenue: 2H21 revenue reached RMB42bn, up 10% YoY, driven by strong ice cream sales that doubled to RMB1.2bn.
• Segment Performance:
  • Liquid Milk: Revenue increased 13% YoY, with UHT milk up 16% and fresh milk up 85%, capturing 13.4% of the market.
  • Ice Cream: Revenue rose 61% YoY, with recurring domestic revenue up 19% YoY (excluding the Aice acquisition).
• Operating Efficiency: Opex ratio decreased by 0.4pp to 29.8%, contributing to a 4.7% recurring operating margin for 2H21.
• 2021 Full-Year Performance:
  • Recurring operating margin was 5.5%, slightly lower than 5.9% in 2019.
• 2022 Guidance: Management maintains a full-year revenue guidance of low double-digit growth and a recurring operating margin expansion of 30-50bps.

Target Price and Valuation

• Target Price: HK$57.0 (unchanged from previous).
• Current Price: HK$42.2.
• Price Target Upside: +35.1%.
• Valuation: Based on a 30x end-22E P/E, which is +1sd above the 3-year average. The target multiple also benchmarks to Yili's.

Stock Data

• Market Cap: HK$166,828 million.
• 3-Month Trading Volume: HK$529 million.
• 52-Week High/Low: HK$50.8 / HK$39.85.
• Total Issued Shares: 3,953 million.

Shareholding Structure

• COFCO (Hong Kong) Limited: 13.9%
• FIL Limited: 7.5%
• Brown Brothers Harriman & Co.: 7.3%

Share Performance

• 1-Month: -15.0% absolute, -13.5% relative.
• 3-Month: -4.5% absolute, +1.5% relative.
• 6-Month: -13.2% absolute, -4.4% relative.

Analyst Ratings

• CMBIG Rating: BUY, indicating potential return of over 15% over the next 12 months.
• Industry Ratings:
  • OUTPERFORM: Industry expected to outperform the relevant broad market benchmark.
  • MARKET-PERFORM: Industry expected to perform in-line with the relevant broad market benchmark.
  • UNDERPERFORM: Industry expected to underperform the relevant broad market benchmark.

Disclosures and Analyst Certification

• The analyst certifies that all views reflect personal opinions and that compensation is not tied to specific views.
• The analyst confirms no trading in the stock within 30 days prior to the report and no trading for 3 business days after.
• No financial interest in the listed companies covered in the report.

Important Disclosures

• Risk Disclaimer: Investing in securities involves risks, and past performance does not guarantee future results.
• No Investment Advice: The report is not tailored to individual investors and should not be used as a basis for investment decisions without professional advice.
• Use of Report: The report is for intended recipients only and may not be reproduced or distributed without written consent.
• Legal Responsibility: CMBIGM is not liable for any loss or damage incurred from reliance on the report's information.

Regulatory Information

• United Kingdom: Report is only for persons falling within Article 19(5) or 49(2) of the Financial Services and Markets Act 2000.
• United States: Report is for "major US institutional investors" only, and not for individual investors.
• Singapore: Report is distributed by CMBISG, an Exempt Financial Adviser, and is subject to Singapore regulations.

Conclusion

Mengniu Dairy's 2H21 results showed resilience in revenue growth, particularly in ice cream and fresh milk segments. However, the GPM was a drag due to raw milk price pressures. The company remains optimistic about its future performance, with management maintaining its 2022 revenue and margin guidance. The BUY rating suggests strong potential for returns, supported by a valuation based on a 30x P/E multiple. Investors should consider the report's disclosures and consult with financial advisors before making decisions.