Jinwu Financial News | According to BOC International Development Research Report, sales of Mengniu Dairy (02319) in 2023 increased 6.5% year on year, and net profit decreased 9.3% year on year. Due to lower raw milk costs, gross margin increased 185 basis points to 37.2%, and non-operating expenses led to a decrease of 85 basis points to 4.9% in net profit margin. The payout ratio increased from 30% to 40%.
According to the bank, the 2024 guidance is disappointing. Management expects a year-on-year increase in sales in 2024 to “low to middle single digits”. The bank expects gross margin to expand as raw milk prices may continue to fall, but due to the need for promotions to drive sales, the increase in sales costs will partially offset the increase in gross margin. Consumption seems to be polarized, and high-end continues, but weak basic products have put pressure on discounts.
The bank continued that despite the weak market, Mengniu's high-end products continued to expand their share, and cheese and milk powder were also improving. The bank lowered its earnings per share forecast and lowered the target price to HK$21.5 (previously HK$34.7), based on 13.4 times the 2024-25 average price-earnings ratio (originally 17 times the 2024 price-earnings ratio) and 1.3 times PEG, corresponding to a compound annual growth rate of 10% in earnings per share for three years. Maintain a buy rating.