2025-08-28 02:12Summary 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]