On January 11, we invited the management of Mengniu to participate in the Puyin Consumer Enterprise Day. The following are the main minutes of the meeting:
The performance in 2022 has strong certainty: although the adjustment of epidemic prevention policy at the end of 2022 had an impact on consumer sentiment in the overall market, dealers prepared stocks in advance for the Spring Festival to help Mengniu improve its income performance in December compared with November. Under the great pressure of 4Q22 market demand, Mengniu 2H22 revenue is still expected to grow in medium to high units. It is gratifying that Terenzu and basic White Milk still maintain double-digit growth in 2H22 (about the same as in the first half of the year), indicating the strong market demand and consumption classification trend of white milk after the epidemic.
In terms of profit margin, the company is still confident that the 2H22 operating profit margin (EBIT margin) is expanding 50bps year-on-year, and the full-year operating profit margin is basically the same as the same period last year.
Ahead of 2023: although mobile sales are uncertain during the Spring Festival, the management goal of Mengniu's income growth in 2023 is faster than 2022 and outpaces the industry and major competitors.
The management believes that the year-on-year expansion of Mengniu's gross profit margin in 2023 has a strong certainty, mainly due to:
1) the company will launch more new products with high gross margins in 2023, thus promoting the improvement of product structure, 2) sales of high-margin categories such as room temperature acid, low-temperature acid and dairy drinks are also expected to recover, 3) prices of raw milk and large packages of powder are expected to remain stable in 2023, and 4) on the basis of healthy inventory in the industry, promotion efforts are reduced compared with the same period last year. Due to the new product launch and the gradual development of offline marketing activities, the sales expense rate in 2023 is difficult to predict, but due to the reduction in equity incentive allocation (100 million year-on-year), the management expense rate is expected to decline compared with the same period last year. As a result, management is confident that the company's long-term goal (30-50bps expansion per year) will be met by 2023.
The development of new categories is gradually on the right track: the income of low-temperature fresh milk has increased by more than 20% in 22 years compared with the same period last year. The company aims to grow faster in 2023 than in 2022, and hopes to reach 10 billion yuan in revenue and average profit margin in the medium to long term. In terms of cheese, Mengniu, which announced Miaoke Lando in December 2022, will integrate the cheese businesses of Mengniu and Miaoke Lando in 1H23, and open more group resources to Miaoke Lando in terms of marketing and channels.
Maintain Mengniu's "buy" rating and industry preference: we believe that Mengniu's performance in 2022 and its outlook for 2023 have strong certainty. Mengniu valuation is still low, with the recovery of market sentiment and the continued release of certainty of dairy performance, Mengniu share price is expected to continue to rise. We maintained our original forecast, but raised the target price of Mengniu to HK $45.60 (equivalent to 24x2023 pact E) based on exchange rate changes and maintained Mengniu's "buy" rating.
Investment risk: the industry demand slows down, the domestic brand competition is greater than expected, and the epidemic situation is repeated.