UBS: Raises the target price of MENGNIU DAIRY (02319) to HKD 22, maintains a "Buy" rating.

UBS has released a research report maintaining a "Buy" rating for MENGNIU DAIRY (02319), raising the target price from HKD 21.2 to HKD 22. The firm has upgraded its revenue expectations for the fiscal years 2026-2028 to incorporate stronger-than-expected sales momentum and the managements revised performance guidance. Management expects profit margins to expand in the second half of the year, benefiting from a lower base, stricter cost controls, and improved efficiency. Thus, it is anticipated that the core operating profit margin will maintain a stable level of 8% in 2026 and may increase due to enhanced operational leverage. UBS noted that management adopted a more positive tone during the earnings conference, emphasizing that all major categories achieved positive growth in the first half of the year, with mid-single-digit revenue growth exceeding expectations. MENGNIU DAIRY's core operating profit reached a record high in the first half of the year, supported by strong sales and strict cost controls by CKH HOLDINGS. Sales momentum in July and August has been consistent with the overall trend of the first half, which also supports management's decision to raise the revenue growth target for fiscal 2026 from mid-single digits to high-single digits. On the business front, UBS pointed out that MENGNIU DAIRY's liquid milk revenue achieved mid-single-digit growth in the first half of 2026, primarily driven by sales growth. Management anticipates that with improvement in the supply and demand relationship for raw milk, sales in the second half will be supported by a gradual rebound in average selling prices. Management also maintains its medium-term target of an annual operating profit margin increase of 30-50 basis points, mainly due to an increase in market share, product mix upgrades, and improvements in production efficiency. Additionally, the rise in raw milk prices is expected to help the healthy development of the industry environment and rebound in average selling prices, with capital expenditure in fiscal 2026 anticipated to be below RMB 2 billion.