Group 1 - The company's revenue decreased by 4% in volume and low single digits in price, resulting in a total revenue of 41.57 billion RMB, with a year-on-year decline in net profit attributable to shareholders of 16.4% to 2.05 billion RMB [1] - Despite revenue pressure, the company's profitability improved, with gross margin increasing by 1.4 percentage points to 41.7% due to falling raw milk prices, and operating profit margin rising by 1.5 percentage points to 8.5% [1] - The management indicated that terminal demand remains weak, expecting a continued decline in volume and price in the second half of the year, leading to a downward revision of the full-year guidance [1] Group 2 - The core liquid milk business saw a revenue decline of 11.2% to 32.19 billion RMB, reflecting weak terminal demand and intense price competition, while other categories like ice cream (+15.0%), cheese (+12.3%), and milk powder (+2.5%) showed positive growth [2] - The cheese business benefited from synergies with Miaokelan, expanding into snack and family meal scenarios, while infant formula experienced double-digit growth, indicating a positive trend [2] - Management aims for an annual improvement of 30-50 basis points in operating profit margin over the next three years, despite the current weak terminal demand [2] Group 3 - The company has lowered its revenue forecasts for 2025-2027 by 8-14% due to the performance in the first half and the recent weak terminal demand, with uncertainty surrounding the recovery of liquid milk sales [2][3] - Based on more conservative operating profit margin predictions, the company has adjusted its profit forecasts for 2025-2027 down by 11-19% for operating profit and 9-27% for net profit attributable to shareholders [3] - The target price has been revised down to 21.51 HKD based on a 15 times expected price-to-earnings ratio for 2026, while maintaining a buy rating [3]

Investment Rating - The report maintains a "Buy" rating for the company, Mengniu Dairy (2319 HK), with a target price adjusted to HKD 21.51, reflecting a potential upside of 35.8% from the current price of HKD 15.84 [1][12]. Core Insights - The management has lowered its guidance due to uncertainties in terminal recovery, with expectations of a mid-to-high single-digit decline in revenue for the full year, contrasting with earlier projections of low single-digit growth [2][7]. - Despite revenue pressures, the company's profitability has shown improvement, with gross margin increasing by 1.4 percentage points to 41.7% due to declining raw milk prices [7]. - The core liquid milk business experienced a revenue decline of 11.2% year-on-year, while other categories such as ice cream, cheese, and infant formula showed positive growth [7][8]. Financial Overview - Revenue projections for 2025 have been reduced by 8% to RMB 83,122 million, with liquid milk sales expected to decline by 10.2% [8]. - Net profit estimates for 2025 have been adjusted downwards by 27.2% to RMB 4,024 million, reflecting a significant decrease in profitability expectations [8]. - The company aims for an annual improvement of 30-50 basis points in operating profit margin over the next three years, despite current challenges [7]. Market Performance - The stock has seen a year-to-date decline of 9.79%, with a 52-week high of HKD 22.15 and a low of HKD 12.30 [6][12]. - The average daily trading volume is reported at 43.21 million shares, indicating active market participation [6]. Earnings Forecast Changes - The report outlines significant downward revisions in earnings forecasts for 2025-2027, with operating profit and net profit estimates reduced by 11-19% and 9-27%, respectively [8][9]. - The adjusted earnings per share (EPS) for 2025 is projected at RMB 1.02, down from previous estimates [3][8]. Dividend and Shareholder Returns - The company maintains a dividend payout ratio of approximately 32.9%, with expected dividends per share increasing over the forecast period [15]. - The report highlights the importance of the company's dividend and share buyback plans as a safety margin for investors [7].