Core Viewpoint - Mengniu Dairy reported a revenue of 41.57 billion yuan and an operating profit of 3.54 billion yuan for the first half of 2025, achieving a year-on-year growth of 13.4% despite challenges in the industry such as slow consumer recovery and low raw milk prices [1] Financial Performance - The company achieved a significant increase in operating cash flow, which grew by 46.2% year-on-year, and improved its operating profit margin by 1.5 percentage points to 8.5% [1] Product Innovation - Mengniu launched over 100 new products in the first half of 2025 to cater to diverse consumer needs across various age groups, covering a full range of dairy products from ambient milk to low-temperature yogurt and infant formula [4][5] - The company introduced 72 new products in the ambient milk segment to enhance basic nutrition and improve cost-performance ratio [5] - The "TeLunSu" brand introduced new products such as A2β-casein milk and organic milk sourced from desert areas, while "GuanYiRu" launched a unique health yogurt [5] Channel Upgrade - Mengniu accelerated channel upgrades through a new RTM model, optimizing both traditional and modern sales strategies, and enhancing online and offline integration [10] - The company launched customized products for membership stores and warehouse supermarkets, achieving significant sales success with products like "GuanYiRu" early morning bulk packaging [10] Digital Transformation - The company utilized digital and intelligent technologies to enhance efficiency, reduce costs, and achieve precise management, including the implementation of an intelligent dealer management system [16] Sustainability Initiatives - Mengniu is committed to sustainable development, having built 37 green factories and maintaining an MSCI ESG rating of AA for two consecutive years [20] Shareholder Returns - The company plans to initiate a new round of share buybacks in 2024, reflecting confidence in its long-term development prospects [20]

Core Viewpoint - Mengniu Dairy is positioned as a leading player in the domestic dairy industry, leveraging its partnership with COFCO Group to drive growth through new product categories and international expansion [1] Company Overview - Mengniu Dairy's revenue composition for 2024 is projected to be 82.40% from liquid milk, 5.84% from ice cream, 3.74% from milk powder, 4.87% from cheese, and 3.15% from other dairy products, indicating a stable performance in its core liquid milk business [1] - The company has established six production bases overseas, contributing to its international business growth, with overseas revenue share increasing since 2019 [1] - Mengniu has over a thousand cooperative farms in China, with daily milk collection exceeding 20,000 tons, ensuring a solid supply chain [3] Industry Trends - The raw milk supply and demand are expected to rebalance, with a 24.53% decline in average raw milk prices from the end of 2021 to July 2023, indicating a potential price stabilization [2] - The industry is witnessing a shift towards high-quality and health-oriented products, with innovations such as low-temperature short-shelf-life milk and sugar-free yogurt gaining traction [2] Product Development and Strategy - Mengniu is expanding its product matrix beyond liquid milk to include fresh milk, cheese, ice cream, and milk powder, with increasing revenue contributions from these categories [3] - The company has implemented a "deep distribution" strategy since 2017, enhancing its penetration in rural markets and improving operational efficiency through digitalization [3] Financial Outlook - The company's net profit margin is relatively high compared to regional dairy companies, with expectations for improved profitability as raw milk prices stabilize and product upgrades continue [4] - Projected net profits for 2025 and 2026 are estimated at 5.08 billion and 5.69 billion respectively, with current PE ratios around 13 times and 12 times, indicating significant upside potential [4]

Investment Rating - The report gives a "Buy" rating for the company, marking its first coverage [9]. Core Views - The company is expected to benefit from a recovery in profitability as raw milk supply and demand approach balance, leading to a slowdown in price competition. The ongoing product upgrades, particularly in high-end segments like fresh milk and cheese, are anticipated to positively contribute to overall profitability [3][9]. Company Overview - The company is a leading player in the domestic dairy industry, backed by COFCO Group, and is diversifying its product categories. In 2024, the revenue breakdown is projected to be 82.40% from liquid milk, 5.84% from ice cream, 3.74% from milk powder, 4.87% from cheese, and 3.15% from other dairy products [6][14]. - The liquid milk segment remains the core business, with stable growth, while ice cream and cheese segments are expected to see further revenue increases, with cheese showing a year-on-year growth of 0.45 percentage points [6][26]. Industry Analysis - The raw milk supply and demand are expected to rebalance, with a potential price turning point on the horizon. Since 2018, milk production has increased for six consecutive years, but recent demand pressures have led to a 24.53% decline in average raw milk prices from late 2021 to July 2023. The stabilization of milk prices is anticipated to improve the profitability of dairy companies [7][9]. - The trend towards high-quality and health-oriented products is expected to drive long-term demand growth in the dairy sector. Innovations in product offerings, such as low-temperature short-shelf-life milk and sugar-free yogurt, align with the health-conscious consumer trend [7]. Business Strategy - The company is enhancing its upstream milk source through investments in farms and strategic partnerships. It currently collaborates with over a thousand farms, ensuring that 100% of its fresh milk comes from large-scale, intensive farms [8]. - The company is also focusing on digital transformation to improve operational efficiency and expand its distribution channels, particularly in rural areas [8][30]. Financial Performance - The company’s revenue is projected to reach 886.75 million in 2024, with a year-on-year decline of 10.09%, while the net profit is expected to be 1.05 billion, down 97.83% year-on-year. The revenue drop is attributed to weak industry demand, but ongoing product innovation and channel expansion are expected to enhance market presence [23][26].