Main points of investment

The product structure has been continuously optimized, and the revenue growth rate has exceeded expectations:

21H1 company's income is + 22.3% to 45.905 billion yuan; gross profit margin is-0.8% to 38.2%; net profit is 2.947 billion yuan, + 143.2% compared with the same period last year. Even under the cost pressure of raw milk price increase, the company through the effective control of product structure upgrading and premium rates, the net profit margin is + 3.4% to 6.4% EPS 0.75 yuan compared with the same period last year, and the revenue growth rate is higher than expected.

The demand of the industry is strong, and the growth rate of the whole category is strong:

Benefiting from the increase in consumer demand and product innovation, the company's 21H1 liquid milk income was + 21.1% to 39.448 billion yuan compared with the same period last year, of which the growth of room temperature white milk was more than 20%; the growth of Tronsu was ≈ 40%; the growth of fresh milk was more than 120%; and the growth of low-temperature yoghurt was also 7%, significantly outperforming the industry. Due to the combination of Ai Xue and table, the company's ice cream business revenue was + 34.8% to 3.004 billion yuan compared with the same period last year, of which its own business increased by 16%. Milk powder business income 2.547 billion yuan, year-on-year + 11.6%, of which Yashili business income 2.16 billion yuan, year-on-year + 31.1%, mainly due to the resumption of offline activities and adult milk powder revenue growth contribution (> 90%yoy), Bellamy due to the same period of high base and Australia purchasing agency channels blocked, sales slowed down and a loss. Other business income was 910 million yuan, + 98.2% year-on-year, of which cheese revenue, the main product, was + 68% year-on-year.

Under the cost pressure, the gross profit margin has declined slightly, and the core profit margin is expected to continue to improve.

21H1 although the purchase cost of raw milk has increased by 15%, through continuous improvement of product structure and reduction of discount promotion, gross profit margin has only decreased by 0.8% to 38.2% compared with the same period last year, and the gross sales margin has widened by 1.8pcts to 10.2%. The rate of management and financial expenses decreased slightly,-0.3% compared with the same period last year, and the rate of other expenses was-1.5% compared with the same period last year, mainly due to donation fees of 450 million yuan in the same period last year. OPM increased by 2.1% to 6.1% compared with the same period last year. Looking forward to the second half of the year, the upward trend of milk prices is expected to slow down, and the company has raised the price of basic white milk in July, which can partially alleviate the cost pressure, and will continue to maintain the continuous improvement of core profit margins through the optimization of product structure and rational market costs.

Maintain a "buy" rating with a target price of HK $57.0:

The company is steady and striving for high-quality growth, and we continue to be optimistic about the competitive environment of the downstream dairy industry and Mengniu's goal of creating a new Mengniu in 2025 under the catalysis of accelerated growth of new categories. We raise our profit forecast for this year and estimate that the EPS for 21Universe 22 will be 1.36 RMB 1.62 yuan respectively, raising the target price to HK $57.00, corresponding to 29 times PE in 2022, maintaining the "buy" rating.