MENGNIU DAIRY(HK:02319) Hua Er Jie Jian Wen·2025-09-01 17:50Core Viewpoint - The dairy industry is undergoing a prolonged adjustment period, and Mengniu has not yet seen signs of recovery, facing challenges from declining sales and market share in the liquid milk segment [1][4][7]. Financial Performance - In the first half of the year, Mengniu achieved operating revenue of 41.567 billion yuan, a year-on-year decline of 6.9%, with both sales volume and prices experiencing low single-digit decreases [1]. - The company's net profit attributable to shareholders decreased by 16.4% to 2.046 billion yuan, with a net profit margin decline of 0.6 percentage points [2]. - Despite a 1.4 percentage point increase in gross margin to 41.7% due to falling raw milk prices, Mengniu faced a 545 million yuan loss from joint ventures, offsetting the benefits of cost reductions on net profit [1][2]. Industry Outlook - The industry outlook for demand recovery and improved competitive dynamics is pessimistic, with a continuous decline in the domestic dairy cow inventory expected from 2024 onwards [3]. - Although the industry is in a capacity clearing phase, milk production still saw a 0.5% year-on-year increase in the first half of the year, with milk prices hovering around 3 yuan per kilogram [3]. Market Dynamics - The anticipated turnaround in the industry cycle has been pushed back to 2026, with Mengniu facing pressures not only from macroeconomic consumption fatigue but also from imbalances in product categories and channel distribution [4][5]. - The liquid milk market is under significant pressure, with Mengniu's liquid milk revenue declining by 11.2% to 32.2 billion yuan, marking a drop in revenue share to 77.4%, the first time below 80% in recent years [7][8]. Competitive Landscape - Mengniu's market share in the liquid milk segment is shrinking, with a widening gap of 4 billion yuan between Mengniu and its competitor Yili [8]. - The company is facing internal competition pressures as lower raw milk prices allow smaller dairy companies to engage in price wars, further eroding market share from leading firms [11]. Strategic Initiatives - Mengniu has accelerated product innovation, launching over a hundred new products in the first half of the year across various categories, including ambient, chilled, ice cream, and functional milk [19]. - The company is focusing on enhancing operational efficiency, reducing inventory turnover days to 36 days, and cutting sales and distribution expenses by approximately 1 billion yuan [14]. Future Projections - Mengniu's management has lowered its full-year guidance from low single-digit growth to a mid-to-high single-digit decline, reflecting a cautious outlook for the second half of the year [12]. - The company aims to optimize its product structure and improve profitability, with expectations that the operating profit margin will remain stable compared to the previous year [17].