UBS: Mengniu Dairy (02319) maintains growth momentum and maintains “buy” rating

The Zhitong Finance App learned that UBS released a research report saying that Mengniu Dairy (02319) maintains its growth momentum, and that continued expansion of operating margins, improved business portfolio and stronger shareholder returns should drive further revaluation to maintain a “buy” rating and target price of HK$22.

UBS recently communicated with the management of Mengniu Dairy. The management reiterated that the 2026 fiscal year guideline is a year-on-year increase in revenue, with an operating profit margin of at least 8%. They also expect the operating margin to expand by another 30 to 50 basis points. The medium-term goal is still to return revenue to more than RMB 100 billion and drive more diversified portfolios with higher value-added businesses.

The bank pointed out that among liquid milk products, fresh milk continued to run out and recorded an increase of about 30%, while low-temperature yogurt resumed growth, and the recovery in pricing and sales of Terensul was better than expected. Milk powder maintained a strong momentum, with growth of more than 50% driven by Bellamy's; cheese products recorded double-digit growth, and international business also recorded double-digit growth. The overall growth portfolio is gradually shifting from traditional liquid milk to higher value-added businesses such as cheese, milk powder, ice cream, international and medical nutrition, supporting portfolio improvement and profit margin expansion.

Management expects supply and demand for raw milk to tighten in the next two to three years, leading to a moderate recovery in prices; capital expenditure will maintain a restraint level of about RMB 2 billion next year, and strong free cash flow will provide room for further improvements in dividends and shareholder returns.