MENGNIU DAIRY(2319.HK)：FY24 RESULTS IN LINE WITH PREVIOUS PROFIT WARNING;BEAT ON CORE OPM EXPANSION-格隆汇

机构：中银国际
研究员：Andy CHEN

　　The Company reported 7.8% YoY adj. net profit drop on 10.1% YoY revenue decrease in 2024. Core OPM expansion was above expectations due to 1) lower raw milk cost, 2) mix improvement, and 3) efficiency and disciplined expenses control. Mengniu is currently trading at 13.4x 25E P/E, substantially lagging Yili and HK-listed F&B peers. We are now more optimistic about re-rating potential. Reiterate BUY with higher TP.
　　Key Factors for Rating
　　Net profit of RMB105m was in line with the range of RMB50m-250m in the profit warning announced on 18 February. Mengniu published FY24 results on 26 March post market close, and hosted a results briefing on 27 March. In 2024, total revenue was RMB88.7bn, down 10.1% YoY (1H/2H: 12.6%/7.4%), in line with expectations. Operating profit grew 17.6% YoY to RMB7,257m, with core OPM of 8.2% (2023: 6.3%), well above expectations. GPM expansion was partially offset by a modest increase in SG&A expenses ratio. Mengniu proposed a higher dividend payout ratio of 45% (2023: 40%) based on adjusted net profit of RMB4,435m (2023: RMB4,809m), excluding the impact of 1) Bellamy’s related impairment loss (RMB3,981m) and 2) goodwill impairment loss of Modern Dairy (RMB349m), for 2024.
　　FY25 outlook. Management now looks for LSD% YoY total revenue growth in 2025. The Company’s 1Q sales should be flat YoY, lagging behind the guidance. Management expects core OPM to remain flat YoY in 2025, and long-term OPM expansion guidance will still be at 30-50bps for each year (e.g. in 2026-28).
　　In 2024, liquid milk sales declined 11.0% YoY (1H/2H: 12.9%/9.0%) due to supply-demand imbalances and competition, esp. from smaller (emerging) brands. Mengniu expand the UHT milk category with a lactose- free series to enlarge the consumer base. Just Yoghurt’s additive-free new SKUs performed well. Milk beverages (incl. Fruit Milk Drink, Suan Suan Ru) stabilised in 2H24. Chilled yogurt category outperformed the industry, with improving profitability & channel structure. YO!FINE Dairy Yogurt sales grew significantly. Fresh milk category maintained solid growth momentum, and Shiny Meadow secured its leadership position in the premium market. Another factor is channel breakthroughs by penetrating into membership and wholesale snack stores and successfully collaborating with top-tier coffee & milk tea brands. Looking ahead, management thinks that currently healthier channel inventory is favourable for FY25’s recovery. UHT milk sales may grow faster in 2H25 vs. 1H25.
　　GPM expansion of 2.4ppts in 2024 came from: 1) lower raw material cost (avg. price of domestic raw milk plunged 14% YoY to RMB3.32/kg in 2024, and YTD avg. price further lowered to RMB3.11/kg, as at 20 March 2025); 2) sales mix upgrade (with growing high-margin sales, esp. for chilled yogurt, fresh milk, milk formula and cheese); and 3) efficiency, plus disciplined expenses control.
　　Key Risks for Rating
　　Risks: 1) intensified industry competition; 2) slower-than-expected dairy demand recovery; 3) unexpected channel shift; and 4) food safety issue.
　　Valuation
　　We revised down our top-line forecasts for 2025-26 by 4%/4%, mainly to factor in weaker-than-expected dairy consumption in general. Distributors may become a bit more cautious about replenishing stock of liquid milk. Ice cream sales were disappointing and may need more time to stabilise. We raised OPM forecasts for 2025-26 by 1.3/1.3ppts based on stronger-than-expected GPM, coupled with fine- tuned SG&A expenses ratio assumptions. Overall, we revised up our adjusted net profit for 2025-26 by 7%/6% .
　　Our new TP of HK$23.30 is based upon 16.0x 25E P/E. Clearly, for Mengniu, the darkest days have passed away. We think that more room for re-rating is justified due to enhanced visibility in fundamentals (e.g. stabilised sales, delivery of OPM expansion, solid cash position). Reiterate BUY rating.