20220826-招银国际-蒙牛乳业-02319.HK-1H22_soft_as_expected__management_remained_upbeat_on_a_strong_sequential_recovery_for_2H_4页_1mb

Mengniu Dairy (2319 HK) Company Update Summary

Core Content

Mengniu Dairy (2319 HK) reported its first-half of 2022 (1H22) results with a net profit of RMB 3.8bn, representing a 27% year-over-year (YoY) increase, and revenue of RMB 47.7bn, up 4% YoY. Excluding non-core gains of RMB 1bn, recurring net profits were RMB 2.7bn, a 9% YoY decline, which aligns with the analyst's expectations. The decline in recurring net profits was primarily due to a 1.6 percentage point (pp) YoY decrease in gross margin to 36.6%.

Management expressed confidence in a strong sequential recovery in the second half of 2022 (2H22), citing a double-digit sales recovery in July. The outlook for the second half is supported by ongoing premiumization efforts, new product launches, and healthy channel inventories, despite a low base effect.

The analyst has moderately trimmed its 2022E revenue and GPM forecasts, with the revised target price at HK$50.5, reflecting a 43.7% upside from the current price of HK$35.2. The company is rated as BUY, with the potential for over 15% returns over the next 12 months.

Main Points

• 1H22 Performance:

  • Revenue: RMB 47.7bn (+4% YoY)
  • Net Profit: RMB 3.8bn (+27% YoY)
  • Recurring Net Profit: RMB 2.7bn (-9% YoY)
  • Gross Margin: 36.6% (down 1.6pp YoY)

• Full-Year Guidance:

  • Revenue growth for 2022E is expected to be high single-digit to double-digit.
  • Gross margin is revised to expand by 0.2-0.3pp from the previous 0.5pp.

• 2H22 Outlook:

  • Management is optimistic about double-digit revenue growth.
  • The recovery is expected to be driven by UHT milk and premium SKUs, especially during the festive season.
  • Product mix upgrades and cost control are expected to drive a 20-30pp improvement in recurring operating profit margin (OPM).

• Product Performance:

  • Premium brands Shiny Meadow and Modern Meadow drove strong sales growth for fresh milk products.
  • Chilled products underperformed, but the analyst anticipates a sequential recovery due to improved consumer sentiment and logistics.
  • Ice cream revenue significantly outperformed the industry, supported by product innovation, e-commerce growth, and emerging channel expansion.
  • Hot weather in June and August is expected to extend this momentum into the third quarter (3Q).

• Valuation and Target Price:

  • Revised target price is based on a 26.0x 2023E P/E, which is the 3-year average.
  • The analyst maintains a BUY rating.

Key Financial Information

Financial Highlights

• Recurring OPM Improvement: Expected to improve by 20-30pp in 2022E due to product mix upgrades and cost control.
• EBIT and Net Profit: EBIT is forecasted to grow to RMB 6.394bn in 2022E, and net profit is expected to reach RMB 6.075bn.
• Gross Margin: Revised to 36.0% for 2022E, down 0.8pp from previous estimates.
• EBIT Margin: Expected to expand to 6.7% in 2022E, up 0.7pp from previous estimates.
• Net Margin: Expected to expand to 6.4% in 2022E, up 0.3pp from previous estimates.

Share Performance and Market Data

• Market Cap: HK$139,022 mn
• 3-Month Trading Range: HK$397.85 mn
• 52-Week High/Low: HK$50.21 / HK$32.2
• Total Issued Shares: 3,955 mn

Shareholding Structure

• COFCO Dairy Investment Co.: 13.92%
• Gendar Ltd: 7.49%
• Brown Brothers Harriman & Co.: 7.29%

Analyst Ratings and Disclaimers

• CMBIGM Rating: BUY
• Target Price: HK$50.5 (Previous: HK$57.0)
• Potential Return: Over 15% in 12 months
• Important Disclosures:
  • The report is not tailored to individual investors.
  • Past performance does not guarantee future results.
  • Information is based on publicly available data and may change without notice.
  • CMBIGM is not a registered broker-dealer in the U.S. or Singapore, and the report may be subject to different regulations depending on the region.
  • The analyst certifies that the views expressed are his/her own and not influenced by compensation.

Risk and Disclaimer

• The report contains general information and is not suitable for all investors.
• CMBIGM does not provide investment advice and recommends consulting a financial advisor.
• The report is for the use of intended recipients only and may not be reproduced or distributed without permission.