February 23, 2026 01:41 PM GMT China/Hong Kong Consumer | Asia Pacific Post-CNY F&B and Gold & Jewelry Channel Check Takeaways The call with a multi-categories distributor reflects improvement in demand in this CNY holiday season, which is in line with market expectation and our previous pre-CNY channel checks. Key Takeaways Liquor - Moutai and WLY saw growth YTD in the distributor's regions as lower pricing drove good volume. They have completed their Feitian Moutai orders for 1Q (40% of annual budget). La ...

Group 1: Mexico Security Crisis - The Mexican army killed Nemesio "El Mencho" Oseguera Cervantes, leader of the Jalisco New Generation Cartel (CJNG), during a military operation supported by U.S. intelligence [2][8] - The operation led to violent retaliation from cartel members across at least five Mexican states, prompting travel warnings from the UK and U.S. governments [3][8] - Analysts suggest that El Mencho's death may result in a power struggle within the CJNG, potentially destabilizing the region further in the short term [4] Group 2: Geopolitical Tensions - High-level nuclear negotiations between the U.S. and Iran are set to resume in Geneva, with the U.S. pushing for a "zero enrichment" deal amid heightened military presence in the region [5][6] - The International Atomic Energy Agency (IAEA) is preparing to review Iran's nuclear facilities, which may impact global oil supply and regional stability [6] Group 3: Market Update - Fonterra Co-operative Group (FCG) ordinary shares will resume trading on the NZX Main Board after a trading halt due to a system error [7][9] - The resumption of trading coincides with Fonterra's significant divestment of the Mainland Group to Lactalis, targeting a tax-free capital return of approximately $3.2 billion [9]

Group 1 - Canada's Prime Minister Mark Carney aims to establish the world's largest trading alliance excluding the United States [1] - A significant portion of Canada's economy is tied to the US, with 80% of the population living within 100 miles of the border and 75% of exports going to the US [2] - Prime Minister Carney has negotiated a tariff deal with China to increase Chinese imports into Canada and is working to connect the Trans-Pacific Partnership with the European Union to form a competing trade bloc against the US [3] Group 2 - Alberta Premier Danielle Smith emphasizes the need for Canada to protect its interests while maintaining a strong trade relationship with the US [4] - President Trump has expressed discontent with Canada's trading strategies and has hinted at not renewing the USMCA, citing that negotiations have been tough but have led to significant trade deals benefiting American workers [5] - The US is particularly interested in opening Canada's agriculture market, especially in dairy and alcohol, which have historically been protected [6]

Group 1 - Arla Foods reported record revenue of €15.1 billion ($17.8 billion) for 2025, driven by a record intake of milk at 14.3 billion kilograms [1] - The company forecasts a revenue outlook for 2026 between €13 billion and €14.1 billion, reflecting lower market prices compared to early 2025 [1] - Total branded revenue increased by 6.9% to €7.03 billion, attributed to maintaining price points during inflation [2] Group 2 - Despite the impact of price levels on volumes in the first half of the year, underlying demand remained strong, with a full-year volume growth of 0.2% [2] - Arla anticipates a return to stronger growth for its strategic brands in 2026, with branded volume-driven revenue growth expected between 1% and 3% [3] - CEO Peder Tuborgh indicated that high milk volumes will characterize the early part of 2026, but the company is prepared to capture renewed consumer demand as prices adjust [4]

Summary of Key Points from the Conference Call Industry Overview - **Industry Focus**: China/Hong Kong Consumer sector, specifically Food & Beverage (F&B) and Dairy industries [1] - **Current Market Sentiment**: The overall industry view is rated as "In-Line" by Morgan Stanley, indicating expectations of performance in line with the broader market [5] Key Insights on Liquor Market - **Moutai Sales Performance**: - Strong demand for Feitian Moutai ahead of the Chinese New Year (CNY), particularly due to the launch of a new 500ml variant on iMoutai [2] - Vintage and Zodiac Moutai sales are reported as weak, but overall Moutai sales have exceeded expectations [2][7] - **Regional Disparities**: - Eastern region shows a positive trend with low channel inventory and improved pricing, attributed to early destocking efforts since 2024 [3] - Southern region experiences a double-digit decline in overall liquor demand year-to-date (YTD), with Moutai being the only brand showing growth [4] Insights on Dairy Market - **UHT Milk Demand**: - Demand for UHT milk has improved due to seasonal discounts, with YTD sales growth reported as flat or slightly positive [4] - Inventory levels are described as healthy, indicating a stable supply situation [4] Additional Observations - **Market Dynamics**: - Demand trends remain uneven across regions, with the eastern region outperforming others [7] - Anticipation of a post-CNY price correction due to low season effects and continued destocking expected in the second quarter of 2026 [4] Analyst Contact Information - **Analysts**: Lillian Lou and Wilkins Tong from Morgan Stanley Asia Limited are responsible for the report [5] Important Disclosures - **Conflict of Interest**: Morgan Stanley may have conflicts of interest due to its business relationships with companies covered in the research [5] This summary encapsulates the critical insights and data points from the conference call, focusing on the liquor and dairy sectors within the China/Hong Kong consumer market.

Summary of China/Hong Kong Consumer Strategy Conference Call Industry Overview - The consumer sector in China/Hong Kong entered 2026 with a mixed setup after three years of underperformance, with no immediate catalysts for a broad-based turnaround [1][3] - Headline consumption is expected to remain soft, necessitating flexible strategies across different sub-categories [1][3] Core Insights - **Macro Environment**: The macroeconomic backdrop has not turned decisively, with policy expected to be reactive rather than proactive regarding property and consumption. A property shock is anticipated to moderate but not end in 2026 [3][22] - **Consumer Dynamics**: Wage and employment levels remain subdued, contributing to ongoing household deleveraging and a drag on labor income dynamics. High precautionary savings and low spending confidence are prevalent [3][22] - **Consumption Growth**: Consumption in 2026 is likely to stabilize at a low growth rate rather than re-accelerate significantly. Focus is on selective segment pricing improvements and better supply discipline [3][23] Market Expectations - **Sales Growth**: Overall consumer sales growth is expected to be around 6% in 2026, with a mixed margin profile due to rising costs in certain areas like hard commodities [4][31] - **Valuation**: Consumer stocks' average P/E ratio is stabilizing around 16x, reflecting a cautious market outlook for 2026 [4][31] Investment Opportunities - Four key investment areas identified: 1. Recovery in offline services consumption (restaurants and beer in Q2-Q3 2026) 2. Supply recalibration in upstream dairy and likely liquor in H2 2026 3. Pricing recovery in restaurants, beer in H1 2026, and sports/cosmetics/liquor in H2 2026 4. Overseas growth in OEM and IP products in H1 2026 [5][21] Key Stock Picks - Recommended stocks include: - **YUMC**: Positive same-store sales growth and traffic - **Haidilao**: Recovery in dine-in demand - **CRB**: Expected growth driven by Heineken's market share gains - **Mengniu and Yili**: Anticipated margin improvements due to reduced raw milk supply [9][13] Macro Indicators - **CPI Trends**: Headline CPI is expected to show low inflation, with selective segments starting to see mild upward pricing revisions [24][27] - **Wealth Effect**: The wealth effect is differentiated across income cohorts, with higher-income groups showing improved spending intentions due to healthier balance sheets [27][31] Risks and Challenges - **Consumer Confidence**: The overall consumer sentiment remains fragile, with market sensitivity to marginal changes [20][22] - **Policy Limitations**: Current consumption-related policies are focused on protecting downside rather than stimulating growth, with limited fiscal support expected [22][27] Conclusion - The consumer sector is navigating a challenging macro environment with cautious optimism for selective recovery in certain segments. Investment strategies should focus on identifying pockets of resilience and potential growth areas while being mindful of the broader economic constraints.

Summary of China Mengniu Dairy Conference Call Company Overview - **Company**: China Mengniu Dairy - **Industry**: Dairy Products - **Market Position**: Second-largest dairy producer in China, following Inner Mongolia Yili - **Key Shareholders**: COFCO (13.5%) and DANONE (7.5%) [10][26] Key Points and Arguments Industry and Market Dynamics - **Liquid Milk Sales Recovery**: After two years of pressure, liquid milk sales are showing early signs of stabilization in 2026, with January sales estimated to have mid- to high-single-digit year-over-year (YoY) growth, a significant improvement from the high-single-digit decline in the second half of 2025 [2][4] - **Raw Milk Price Stabilization**: Following herd destocking, raw milk prices have stabilized around Rmb3/kg, with expectations of a price recovery in 2026 due to continued herd contraction [3][4] - **Impact of Subsidies**: Last year's delivery subsidies boosted demand for freshly prepared milk beverages, cannibalizing packaged liquid milk sales. As these subsidies phase out, Mengniu is expected to regain some market share [3] Financial Performance and Forecasts - **Sales Growth Forecast**: Projected sales growth of 4.6% in 2026, primarily driven by the recovery in liquid milk [4] - **Operating Profit Growth**: Expected operating profit to grow by 10.6% YoY, with an improvement in operating profit margin (OPM) by 40 basis points [4] - **Net Profit Projection**: Anticipated net profit of Rmb5.1 billion, reflecting a 32.8% YoY growth, supported by operational improvements and reduced impairment losses related to raw milk prices [4] Valuation and Investment Recommendation - **Valuation Metrics**: Mengniu's valuation is attractive with an estimated P/E of 11.8x for 2026 and a projected 20% EPS CAGR from 2025 to 2027 [5] - **Target Price**: Reiterated Buy rating with a target price of HK$20.5, implying a 15x P/E for 2026 [5][6] - **Market Capitalization**: Approximately HK$66.9 billion (US$8.57 billion) with a free float of 75% [6] Risks and Challenges - **Economic Sensitivity**: Risks include significant economic slowdown, competition, cost inflation, price resistance, changes in government policies, and regulatory challenges [12] - **Industry Vulnerability**: The dairy industry is sensitive to external risks, including disease outbreaks and regulatory changes that could hinder growth [12] Additional Insights - **Herd Contraction**: The milkable cow herd has been contracting since February 2024, with a 9% reduction from peak levels by the end of 2025 [3] - **Market Trends**: The overall dairy value chain is expected to experience reduced competitive intensity as raw milk prices stabilize [2][3] This summary encapsulates the critical insights from the conference call regarding China Mengniu Dairy's market position, financial outlook, and the broader industry context.

Group 1 - VILVI Group reported consolidated sales of EUR 27.07 million for January 2026, reflecting a 9.2% increase compared to January 2025 [1] - The group includes several companies such as Vilkyškių pieninė AB, Modest AB, Kelmės pieninė AB, Kelmės pienas UAB, Pieno logistika AB, Baltic Dairy Board SIA, and Marijampolės pieno konservai UAB [1] Group 2 - On January 16, 2026, Vilkyškių pieninė AB completed the acquisition of 100% of the shares of Marijampolės pieno konservai UAB [2] - Marijampolės pieno konservai UAB specializes in the production of canned milk and milk powder [2]

Core Viewpoint - China has reduced import tariffs on EU dairy products from previously high provisional rates, responding to lobbying from the European Commission and the European Dairy Association (EDA) [1][2] Group 1: Tariff Changes - The new tariff rates have been set at a maximum of 11.7%, with some EU companies, such as Arla Foods and Lactalis, benefiting from even lower rates of 9.5% [2] - The previous provisional tariffs ranged from 21.9% to 42.7%, which were imposed following an anti-dumping investigation initiated in 2024 [1][5] Group 2: Industry Response - The EDA plans to meet with the European Commission to discuss the implications of the new tariffs [2] - The EDA emphasized the need for the EU to defend market access and support affected exporters, while also avoiding further disruptions in dairy markets [3] Group 3: Market Context - China is the largest importer of dairy products globally, and the EU plays a crucial role in fulfilling this demand, particularly for cream and cheese [6] - Despite the reduction in tariffs, the EU's competitiveness in the Chinese market may still be undermined [6] Group 4: Trade Compliance - Eucolait expressed disappointment over the tariffs but affirmed that EU dairy trade with China complies with international trade rules [6] - A spokesperson from the European Commission criticized the tariffs as being based on "questionable allegations and insufficient evidence" [6]

Vi e w p o i n t | 26 Jan 2026 19:51:10 ET │ 13 pages Mengniu (2319.HK) Likely more cyclical 26E NP recovery than peers CITI'S TAKE Among big-cap China consumer staple names, we expect Mengiu's cyclical NP recovery in 26E to be more substantial than peers. With the stabilized pace of YoY sales decline in 4Q25 (-HSD), we expect its 2025E full-year OPM to fall 30bps YoY, only slightly below its guidance (YoY flat). Positively, we expect its group sales to revert to HSD growth in Jan-Feb 2026E and 5% growth in ...