Incident Overview

On December 17, Mengniu Group held the 2024 Global Partner Conference on the theme of “Top Ben 100 Years, Innovate Mengniu Together” at the Xiamen International Convention and Exhibition Center. More than 8,700 Mengniu dealers, industry chain partners, and research experts from around the world gathered to discuss and share new trends in Mengniu's development.

Analytical judgment

Anchored the strategic goal of “creating another new Mengniu”

According to the degree of consumption, the chairman of the company said that facing the second half of the dairy industry, Mengniu will focus on the 'three major focus' of R&D innovation, brand building, and digital intelligence transformation, to accelerate channel optimization and accelerate the “two major accelerations” of new business development, and serve consumers as 'one center' to support long-term business development, and 'kick' the second half of the dairy industry to achieve a century-old career. In the future, the company will achieve its goals by speeding up channel optimization and expanding new businesses. Specific examples include grasping emerging channels, cold chain capabilities, and township penetration trends, responding quickly to consumer demand, and expanding new tracks in the field of professional nutrition to enhance innovation and category development capabilities. At the same time, JD.com signed a 2024 strategic cooperation agreement with Mengniu Low Temperature and Mengniu Fresh Milk. Based on the results of the existing cooperation, the two sides will develop deeper cooperation in various areas such as accurate traffic operation, digitization of supply, and omni-channel marketing to explore innovation in the instant retail model of dairy brands.

Judging that the annual growth trend is similar to that of the first half of the year. Overall, we believe that consumption of dairy products will maintain a trend of mandatory > optional, weak recovery in high-end products throughout the year.

1) Room temperature business: According to Nielsen data, we determine that room temperature white milk is expected to maintain the growth trend in the first half of the year. Due to various factors such as macroeconomics, consumption environment, and increased consumer choices in leisure scenarios, we expect a double-digit decline for room temperature yogurt. Among them, we judge that the effect of large single products is more obvious, and brand share continues to be concentrated, so Telensu is expected to maintain a high single-digit or 10% growth rate. The growth rate is expected to be about the same in the first half of the year;

2) Low-temperature business: According to Immediate Win data, low-temperature fresh milk is expected to continue to maintain a double-digit growth trend similar to the first half of the year; the trend of low-temperature yogurt is improving month-on-month and is expected to achieve single-digit growth throughout the year; 3) Milk powder: the overall business is still under pressure under pressure from the number of newborns, but the concentration of categories after the new national standard is expected to maintain a relatively stable scale; from a profit perspective, due to investment income from upstream ranching farms being more linked to milk prices in the second half of the year (according to data from the Ministry of Agriculture and Rural Affairs, milk prices continue to decline in the second half of the year (according to data from the Ministry of Agriculture and Rural Affairs, the main production area in China Fresh milk prices are the same in the second half of the year (Compared to -4.7%), it is expected that full-year investment income and related asset impairment will continue to have an impact on net profit. Our previous forecast was quite optimistic, and now we have adjusted the net profit caliber for 23.

It is expected to be stable and positive in 24. Looking at current undervalued investment opportunities in terms of revenue, despite facing consumption power and economic pressure in '24, the dairy industry was actually less affected from recent tracking. We are still not pessimistic about the revenue side in '24. It is expected that the company will continue to expand and grow. Our analysis is expected to maintain a single-digit growth rate.

Among them, room temperature white milk is still expected to maintain single-digit growth. On the one hand, high-end consumption is still driving overall growth; on the other hand, there is still room for improvement in the per capita consumption of white milk in low-tier cities + company channel operation efficiency; low-temperature fresh milk is also expected to continue to grow at or above 23 years under the influence of channel power; low-temperature yogurt is expected to accelerate in 24 years under the guidance of innovation; and milk powder is expected to remain steady for 24 years after 23 years of being affected by inventory+national standard registration.

From a profit perspective, according to data from the Ministry of Agriculture and Rural Affairs, the price of fresh milk is -0.5% since the beginning of '24, and the logic behind it is still that the impact of past cycles has not bottomed out. There is still an oversupply of raw milk in the market, but the decline in 24 years is expected to be less than 23. Therefore, we judge that from a gross margin perspective, the company as a whole is expected to continue to increase under continuous structuring+cost dividends; competition in the dairy industry in '24 has gone through a period of sharp decline in raw milk in 23 years. It is expected that promotions will remain further stable, and the cost ratio is expected to remain flat or fall. In terms of net profit, the depreciation and investment return of Dabaofen is expected to be higher than in 23 years. Among them, Dabaofen is mainly due to the use of 23 more years of inventory in 24 years, and along with the development of businesses such as milk drinks/ice cream/adult powder, the combined pressure of raw milk in 24 years is less than 23 years, and the spraying pressure in 24 years will be less than 23 years. Therefore, it is better to judge the extent to which actual net profit increased in 24 years.

Due to Mengniu's revenue growth falling to single digits in 22-23, valuations corresponding to performance in stock prices continued to decline. Since the valuation multiplier has been reduced, the market is very concerned about whether Mengniu's dividend rate will increase. Judging from our analysis, the company's 20-22 fixed asset investment period has passed (125.47/173.35/19.653 billion yuan, respectively), and CAPEX is expected to gradually decline from '23, and dividends are expected to increase year by year after increasing free cash flow. Combined with Mengniu as a holding subsidiary of a central enterprise, we expect the certainty that Mengniu's dividend rate will increase in the future after the SASAC gradually conveyed requirements for central enterprises' market value management recently.

Currently, the company's stock price is at its lowest level in nearly 6 years, and the corresponding PE valuation in 24 was only 12 times higher. Taking full account of the future growth space and certainty of the dairy industry, we recommend focusing on its current undervalued investment opportunities.

Investment advice

Based on the above reasons, we adjusted our profit forecast. The revenue for 23-25 was reduced from $1000/1074/114.9 billion yuan to $981/1031/108.1 billion, net profit to mother was lowered from $60/74/8.3 billion to $48/57/6.3 billion, and EPS was lowered from $1.52/1.86/2.11 to $1.23/1.44/1.59 billion. The closing price of RMB 18.168 (exchange rate 0.9084) on February 1, 2024 corresponds to PE 13/11/10 times, respectively, maintaining a “buy” rating.

Risk warning

Risk of continuing decline in the neonatal population; food safety risks; risk of changes in raw milk prices; risks caused by fierce competition within the industry, etc.