Summary of Mengniu Dairy (2319.HK) 1H25 Results and Key Insights Company Overview - **Company**: Mengniu Dairy - **Ticker**: 2319.HK - **Reporting Period**: 1H25 - **Report Date**: August 27, 2025 Key Financial Highlights 1. **Sales and Net Profit**: - Total sales decreased by **6.9% year-on-year (yoy)** to **Rmb 41.6 billion** - Net profit fell by **16.4% yoy** to **Rmb 2.0 billion** [1][9] 2. **Core Operating Profit (OP)**: - Core OP increased by **13% yoy**, with an Operating Profit Margin (OPM) of **8.5%**, up **150 basis points (bps)** yoy, exceeding the market expectation of **7.6%** [1][8] 3. **Gross Profit Margin (GPM)**: - GPM expanded by **1.5 percentage points (pp)** in 1H25, attributed to lower raw milk costs [1][8] 4. **Cash Flow**: - Operating Cash Flow (OCF) improved to **Rmb 2.8 billion**, a **46% increase** from **Rmb 1.92 billion** in June 2024 [1][8] 5. **Capital Expenditure (Capex)**: - Capex significantly reduced by **40% yoy** to **Rmb 1.0 billion** in 1H25 [1][8] 6. **Net Debt**: - Net debt decreased by **19% half-on-half (HoH)** to **Rmb 14.1 billion** from **Rmb 17.3 billion** at the end of 2024 [1][8] Segment Performance 1. **Liquid Milk Sales**: - Liquid milk sales declined by **11% yoy**, below market expectations by **5%** [1][7] - Fresh milk and low-temperature yogurt showed growth, while ice cream sales increased by **15% yoy** [1][7] 2. **Other Dairy Products**: - Infant formula sales grew by **2% yoy**, and other dairy products (including cheese) increased by **12% yoy** [1][7] Challenges and Risks 1. **Associate Losses**: - Higher associate losses due to raw milk price cycles, with losses of **Rmb 545 million** in 1H25 compared to **Rmb 133 million** in 1H24 [1][9] 2. **Interest Income**: - Interest income decreased to **Rmb 540 million** from **Rmb 914 million** [1][9] 3. **Tax Rate**: - Effective tax rate increased to **24%**, primarily due to associate losses, compared to **18%** in 1H24 [1][9] Future Outlook 1. **Demand Outlook**: - Upcoming onsite briefing scheduled for August 28, focusing on demand outlook for liquid milk, growth expectations for 2H25, and product plans [1][3] 2. **Raw Milk Cycle**: - Industry herd size is declining, with expectations for further reductions, impacting raw milk supply and pricing [1][10] 3. **Shareholder Returns**: - Discussion on shareholder return plans is anticipated in the upcoming briefing [1][3] Management Changes - **CFO Appointment**: Mr. Shen Xinwen appointed as CFO effective September 1, 2025, succeeding Mr. Zhang Ping [2][2] Investment Considerations - **Price Target**: Goldman Sachs maintains a **Buy** rating with a 12-month price target of **HK$ 23.30**, representing an upside of **43.8%** from the current price of **HK$ 16.20** [13][14] - **Risks**: Key risks include slower-than-expected premium demand, intense competition, and potential wider losses in new categories [13][13]