MENG NIU DAIRY(02319.HK)：QUITE ATTRACTIVE VALUATION ALONGSIDE ROBUST GROWTH PROSPECTS-格隆汇

机构：国泰君安国际
研究员：Andy Chen

Improving profit margin despite increasing raw milk cost. Growth in raw milk prices is projected to ease towards the end of 2021 but prices will remain higher on average in 2021-2022. We are more optimistic about Mengniu's profit margin improvement due to continuous mix upgrade, better control of upstream supply, operational excellence (through digital transformation in chain management), and wholesale price hike effective from July 2021.
Expecting Mengniu's revenue to grow at CAGR of 15.4% from 2020 to 2023. Mengniu expects its 2025 sales to double from 2020 levels with primary focus on differentiation and premiumisation to drive organic growth. In 2021-2022, sales of Milk Deluxe is expected to reach RMB25.8 bn/ RMB30.3 bn and sales of Mengniu pure milk products is expected to reach RMB15.1 bn/ RMB17.4 bn, respectively, according to our estimates. Besides, fresh milk and cheese both are expected to maintain robust growth momentum during 2021-2023.
Strong results in 1H2021. Mengniu's revenue/ shareholders' profit recorded YoY growth of 22.3%/ 143.2% for 1H2021, outpacing Yili's 18.9%/ 42.5%. The average cost of raw milk was up 15% YoY, which dragged down Mengniu's 1H2021 gross margin by 4.0 ppt (according to the management), but due to positive impact from mix upgrade, overall gross margin only slightly fell by 0.8 ppt YoY to 38.2%. SD&A expenses ratio improved 2.8 ppt YoY to 31.6%. In a nutshell, shareholders' profit reached RMB2,947 mn in 1H2021.
Set the investment rating as "Buy". Given exceptional top-line and bottom-line growth prospects, Mengniu's valuation has upside potential. Our TP of HK$57.90 represents 36.0x/ 29.8x/ 25.0x 2021-2023 PER.